Oracle posted a mixed second quarter as cloud revenue was $4.8 billion, up 25% from a year ago but up slightly sequentially. Oracle reported better-than-expected second quarter earnings with a revenue miss.

The company reported second-quarter earnings of 89 cents a share on revenue of $12.9 billion, up 5% from a year ago. Non-GAAP earnings in the second quarter were $1.34 a share.

Wall Street was expecting Oracle to report fiscal second quarter earnings of $1.32 a share on revenue of $13.05 billion.

Going into the second quarter results, optimism about Oracle's cloud infrastructure business and generative AI workloads was rampant. Oracle's cloud business, which is approaching a $20 billion annual revenue run rate in the second quarter, broke down like this:

  • IaaS and SaaS revenue combined in the second quarter was $4.8 billion, up 25% from a year ago. The first quarter revenue for IaaS and SaaS was $4.6 billion.
  • Cloud infrastructure revenue in the second quarter was $1.6 billion, up 52% from a year ago.
  • Cloud application second quarter revenue was $3.2 billion, up 15% from a year ago, with Fusion Cloud ERP sales up 21%. NetSuite revenue was up 21% from a year ago.

Oracle CEO Safra Catz said demand for cloud infrastructure and generative AI services is "increasing at an astronomical rate." Oracle's Remaining Performance Obligations (RPO) and indicator of future revenue gains topped $65 billion.

CTO Larry Ellison said Oracle is "is in the process of expanding 66 of our existing cloud datacenters—and building 100 new cloud datacenters." Ellison added that it is turning on 20 new Oracle cloud data centers connected to Microsoft Azure.

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Speaking on a conference call, Ellison said Oracle needs to build out its infrastructure to meet demand. Ellison said Oracle plans to announce two new cloud contracts at $1 billion or more. "Broad demand is not only driven by generative AI customers, but also by nation states, plus large banks, telecommunications, telecommunications and industrial companies buying dedicated cloud," said Ellison.

Catz said the only thing holding back cloud revenue is capacity. She said:

"The only limiting factor is our ability to get the data centers handed over and filled up fast enough. This quarter alone, we're talking about hundreds of millions of dollars that we would have been able to recognize if our capacity was available."

Ellison said Oracle can bring data centers online quickly.

"We're able to build new data centers rapidly and operate them effectively. Because all of our data centers are architecturally identical and highly automated," said Ellison, who said growth for Oracle Cloud Infrastructure should top 50%. He added that data centers are being built for sovereign deals with Japan, Italy, Saudi Arabia, Bangladesh, and others.

Constellation Research analyst Holger Mueller said:

"Oracle's transformation is ongoing, but its new revenue sources are not making up for the slowdown of old on premises revenue. The key is that Oracle keeps investing into its cloud buildout – with almost $7 billion in capex in the second quarter, which marks the first quarter in a year where capex is under $8 billion. The good news is that Oracle has become more profitable, so when the top line grows by only 5% earnings per share are up by 50%. That earnings capacity shows the experienced leadership by Safra Catz and team. All eyes are now on Oracle’s Q3, which traditionally is stronger than the second quarter. In Q4, Oracle is able to capture the budget flush in its installed base."

As for guidance, Catz said total cloud revenue excluding Cerner should grow between 26% and 28%. Non-GAAP earnings will be between $1.35 and $1.39 a share.

By the numbers:

  • Oracle cloud services and license support is now 74% of revenue, up from 70% a year ago.
  • Cloud license and on-premises license revenue was 9% of sales.
  • Americas revenue in the second quarter was $8.08 billion with EMEA was $3 billion. Asia Pacific revenue was $1.61 billion.
  • Hardware was 6% of total revenue in the second quarter, down from 7% a year ago. 

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