Oracle Reports Strong Bookings, Signaling Cloud Momentum

(Bloomberg) -- Oracle Corp. reported better-than-expected bookings, suggesting continued momentum for the company’s effort to compete in cloud computing against its larger tech rivals.Most Read from BloombergHunter Biden Convicted of Gun Charges by Jury in DelawareApple Hits Record After Introducing ‘AI for the Rest of Us’Musk to Ban Apple Devices If OpenAI Is Integrated Into OSFed’s Higher-for-Longer Stance Hits Firms That Expected Rate CutStocks Rise as Solid Treasury Sale Spurs CPI Bets: Mark Read More...

(Bloomberg) — Oracle Corp. reported better-than-expected bookings, suggesting continued momentum for the company’s effort to compete in cloud computing against its larger tech rivals.

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Separately, Oracle announced cloud partnership deals with startup OpenAI, Microsoft Corp. and Alphabet Inc.’s Google. The shares jumped about 9% in extended trading.

Total remaining performance obligations, a measure of future contracted sales, increased 44% to $98 billion in the fiscal fourth quarter, the company said Tuesday in a statement. Analysts, on average, estimated $73.9 billion.

The Austin-based company, known for its database software, is focused on expanding its cloud infrastructure business — which rents computing power and storage — to compete with Amazon.com Inc., Microsoft and Google. While this division produces a small portion of total sales, investors view it as Oracle’s major future growth bet.

Large Cloud Deals

In the past two quarters, “Oracle signed the largest sales contracts in our history — driven by enormous demand for training AI large language models in the Oracle Cloud,” Chief Executive Officer Safra Catz said in the statement.

Revenue growth will increase by double digits in the current fiscal year ending in May 2025, fueled by strong demand for artificial intelligence workloads, Catz said. Growth should accelerate through the year as the cloud unit’s “capacity begins to catch up with demand,” she added.

Oracle also announced a new agreement to make its namesake database available on Google’s cloud infrastructure. A similar deal with Microsoft, which was announced in late 2023, “will turbocharge our cloud database growth,” Chairman Larry Ellison said in the statement.

OpenAI, which has received billions in funding from Microsoft, will use Oracle’s cloud infrastructure for “additional capacity,” the companies said in a separate statement. Oracle’s cloud has developed a reputation for success with generative AI startups — the company touted customers including including Reka, MosaicML, and Elon Musk’s xAI. Artificial intelligence technology needs enormous computing power to work.

‘Undeniable’ Momentum

The momentum in Oracle’s cloud infrastructure business “is undeniable and the OpenAI announcement creates another positive data point in AI,” wrote Kirk Materne, an analyst at Evercore ISI.

Catz, on a conference call after the results, said the cloud infrastructure unit will grow more than 50% in the current fiscal year.

The shares reached a high of $137.37 in late trading after closing at $123.88 in New York. The stock has jumped almost 18% this year, hitting a record in March.

Revenue from the cloud unit that rents computing power and storage increased 42% to $2 billion in the period ended May 31. Analysts, on average, estimated $1.97 billion, according to data compiled by Bloomberg.

Total revenue gained 3.3% to $14.3 billion, compared with the $14.6 billion average estimate. Profit, excluding some items, was $1.63 per share. Analysts projected $1.65.

Software Lull

Underwhelming results from peers like Salesforce Inc. and Workday Inc. in recent weeks have fueled investor anxiety that technology budgets are being funneled away from application software to artificial intelligence tools. Sales in Oracle’s cloud applications business, including its Fusion apps for corporate finance, increased 10% to $3.3 billion. That’s a slowdown from the roughly 14% growth the unit has seen over recent quarters and below analysts’ estimates.

The new partnerships are likely to accelerate growth in Oracle’s cloud infrastructure business, which could help offset a slowdown in applications, wrote Anurag Rana, an analyst at Bloomberg Intelligence.

Oracle’s results have been buffeted by its health unit, which includes Cerner, the electronic health records business Oracle acquired in June 2022 for $28 billion. The company is currently focused on transitioning the legacy software business to the cloud, though it has faced setbacks such as customer departures and the renegotiation of a flagship federal contract.

Cerner hurt revenue growth in the 2024 fiscal year by 2%, Catz said on the call. The company, however, will no longer break out the Cerner financial results during earnings, “because it is now operating in a growth mode,” she said.

Catz also said Oracle will be exiting its advertising business, which generated only $300 million in the fiscal year that ended May 31.

(Updates with additional company comments beginning in the 10th paragraph)

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