Oracle releases the "strongest financial report in history," so why did the stock price fall?

Original Title: "Oracle Delivers the Strongest Financial Report in History, Why Did Its Stock Price Drop?"
Original Author: Li Hailun, Tencent Technology

Oracle has released a record-breaking financial report. However, behind the data growth, AI cloud orders are driving up the company's data center investments and capital expenditures, and free cash flow for the year has turned negative.

On June 10th, local time in the United States, Oracle announced its fiscal year 2026 fourth quarter (covering February 2025 to May 2026) and full-year financial results.

The financial report shows that Oracle's total revenue for Q4 was $19.2 billion, up 21% year-over-year. Excluding currency exchange impacts, the growth was 20%, surpassing market expectations. According to data provided by LSEG, analysts had previously expected Oracle's Q4 revenue to be $19.1 billion.

Oracle Q4 Financial Data

Operating profit was $6.1 billion, up 20% from $5.1 billion in the same period last year; excluding US GAAP adjustments, Oracle's Q4 adjusted operating profit was $8.6 billion, compared to $7 billion last year.

Operating profit margin was 32%, compared to 33% in the same period last year. Excluding US GAAP adjustments, Oracle's Q4 operating margin was 45%, versus 44% last year.

Net profit was $4.22 billion, up 23% from $3.43 billion last year. Excluding US GAAP adjustments, Oracle's Q4 net profit was $6.2 billion, a 26% increase from $4.9 billion last year.

Earnings per share (diluted) were $1.45, up 21% from $1.19 last year. Excluding US GAAP adjustments, EPS was $2.11, a 24% increase from $1.70 last year.

Looking at the full year, Oracle's total revenue reached $67.4 billion, a 17% increase year-over-year, setting a new record. Cloud business revenue for the year was $34 billion, up 39%, while software revenue was $24.5 billion, down 1% year-over-year.

Oracle FY2026 Full-Year Financial Data

Net profit was $17 billion, up 36%. Excluding US GAAP adjustments, net profit was $22.2 billion, up 29%. Earnings per share were $5.83, up 34%. Excluding US GAAP adjustments, EPS was $7.63, up 27%.

Behind the revenue record, AI is pushing Oracle's revenue ceiling higher and increasing its capital expenditure pressure.

Oracle's full-year operating cash flow for FY2026 was $32 billion, up 54%. Free cash flow was negative $23.7 billion, with capital expenditures of $55.7 billion.

Oracle also announced a quarterly dividend of $0.50 per share, payable on July 24, 2026, to shareholders registered as of the close of business on July 10, 2026.

After the earnings release, Oracle's stock price dropped by 5% in after-hours trading. Previously, Oracle's stock had increased by 3% year-to-date, underperforming the S&P 500, which rose 6%.

Cloud Business Supports Half of Oracle's Revenue

Oracle's cloud business (IaaS plus SaaS) contributed $9.9 billion in revenue in Q4, a 47% increase, accounting for half of the company's total revenue.

The main driver of growth was the cloud infrastructure business (IaaS), which generated $5.8 billion in revenue in the quarter, up 93%. This slightly exceeded market expectations of 91%, and is among the top levels in the entire cloud computing industry. The company's full-year IaaS revenue reached $18.1 billion, a 77% increase.

Oracle Business Segment Financial Data

In comparison, the SaaS cloud application business generated $4.1 billion in Q4 revenue, with a 10% growth rate, representing steady but not spectacular growth.

Traditional software licensing and support services continued to decline, with quarterly revenue of $6.8 billion, down 2% year-over-year, indicating that customer migration to the cloud remains ongoing. Service and hardware businesses grew by 13% and 9%, respectively, but their smaller scale has limited overall impact.

Both database and application businesses benefited from Oracle's early adoption of AI. Revenue from multi-cloud AI databases in Q4 increased by 404%, with order volume up 325%, making it the company's fastest-growing business ever. This speed confirms that AI-related demand is not only limited to infrastructure but is also penetrating upstream data management layers.

In the report, Oracle attributed its performance growth to widespread market demand for its cloud technology and application suite. From the perspective of revenue structure, Oracle has essentially completed its transformation from a database software company to a cloud infrastructure provider, with AI-driven computing power demand being the main force behind this shift.

The AI Bet Behind the $638 Billion Orders

The most eye-catching figure in the financial report is the remaining performance obligations (RPO), which is the total value of signed contracts not yet recognized as revenue.

By the end of Q4, this number reached $638 billion, up from $553 billion three months earlier—a net increase of $85 billion in three months, with a year-over-year growth rate of 363%. Wall Street analysts previously predicted this figure to be around $590-600 billion, so the actual data far exceeded expectations.

Bank of America analysts highlighted a key point: more than half of this $638 billion comes from OpenAI. In other words, Oracle's largest current customer is an AI startup that is still heavily spending money.

Oracle explained the composition of these orders in a statement. Most of the new RPO comes from large-scale AI contracts, which either involve customers prepaying for GPU purchases or customers buying GPUs themselves for deployment by Oracle. Currently, the total of such customer-funded hardware contracts is $75 billion. Oracle states that this arrangement significantly reduces the company's financial pressure to raise funds for building AI data centers.

This structure reduces some financial risks for Oracle. However, if its largest customer faces funding difficulties or if overall demand in the AI industry fluctuates, this highly concentrated order structure could pose a risk.

Reuters analysis notes that the software industry is facing investor concerns that AI tools may replace traditional software products, potentially pulling enterprise clients away from conventional software, which presents additional challenges for Oracle.

The Massive Orders Come with Heavy Capital Expenditures

Supporting Oracle's $638 billion orders are huge capital investments. In Q4, Oracle's capital expenditures were $15.9 billion, totaling $55.7 billion for the full year—significantly higher than Oracle's previous guidance of $50 billion.

Oracle's Free Cash Flow Turns Negative at $-23.7 Billion

This directly worsened free cash flow. Despite a record $32 billion in operating cash flow for the full year, after deducting capital expenditures, free cash flow turned negative at $-23.7 billion.

To fill the funding gap, Oracle raised $43 billion through debt financing and $5 billion through equity financing in FY2026.

The company also announced plans to raise another $40 billion in FY2027, including the previously disclosed $20 billion equity raise. Oracle stated it would not issue new debt in the second half of 2026, but this did not stabilize market sentiment.

CNBC believes that previous financing activities have already raised investor concerns, as the market remains uncertain whether the demand for AI can absorb such massive new capital. When the company announced further large-scale financing, these concerns intensified.

Reuters further analyzed that Oracle's performance could exacerbate investor worries in two areas: first, AI-driven disruption of demand for traditional software could pull enterprise clients away; second, Oracle's high debt levels on its balance sheet pose financial risks.

TD Cowen analyst Derrick Wood pointed out that Oracle's stock price had previously risen possibly because investors were more optimistic about the prospects of the computing service provider and its key customer, OpenAI.

In other words, the market had already built some optimism and gains before the earnings report. When new financing plans and higher-than-expected capital expenditures were announced, some investors chose to reassess risks or take profits, amplifying the stock's pullback.

FY2027 Revenue Target of $90 Billion

Oracle provided clear expectations for the next phase of growth.

In Q1 FY2027, total revenue is expected to grow between 27% and 29%, with adjusted EPS between $1.72 and $1.76. The median of these guidance figures exceeds analyst expectations. Additionally, cloud revenue growth guidance remains high at 57% to 63%.

For the entire FY2027, Oracle reaffirmed its revenue target of $90 billion and raised its adjusted EPS guidance to $8.05.

The company explained that this growth rate is calculated after excluding one-time items such as the sale of its Ampere chip business and Bloom Energy warrants in FY2026, with actual year-over-year growth around 18%. Analysts previously expected EPS of $8.01 and revenue of $88.9 billion.

Focus on AI in Healthcare

In addition to cloud infrastructure and AI computing orders, Oracle is trying to extend AI capabilities into more specific industry applications, with healthcare being one of its key focus areas.

Oracle's health application suite will launch an AI-based Cerner hospital and clinic patient care management system, which is expected to boost the overall growth of its health business into double digits in FY2027. Oracle emphasized in its statement that this is just the beginning of health business expansion.

Looking further ahead, Oracle believes AI will fundamentally transform healthcare.

The company outlined three specific directions: Oracle Health AI systems will reduce doctors' time spent in front of computers, allowing more patient interaction; AI molecular design models could accelerate the development of life-saving drugs; and new AI clinical trial systems aim to enable regulators to review and approve clinical trial results more quickly, allowing patients faster access to new medicines.

Oracle does not want to be just an AI computing provider but also aims to embed AI capabilities into healthcare software, drug development, and clinical trials. However, compared to cloud infrastructure orders, this part of the business is still in an earlier stage, and whether it can be scaled into substantial revenue remains to be seen over time.

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