Oracle reported better-than-expected fiscal third quarter earnings and said cloud revenue was $5.1 billion, up 25% from a year ago. Infrastructure-as-a-service revenue was $1.8 billion, up 49% from a year ago, with SaaS at $3.3 billion, up 14% from a year ago.

The company reported third quarter earnings of 85 cents a share ($1.41 a share non-GAAP) on revenue of $13.3 billion, up 7% from a year ago.

Wall Street was expecting Oracle to report fiscal third quarter earnings of $1.38 a share on revenue of $13.3 billion.

CEO Safra Catz said Oracle landed large cloud infrastructure contracts in the third quarter to drive the company's remaining performance obligations up 29% to $80 billion.

"We expect to continue receiving large contracts reserving cloud infrastructure capacity because the demand for our Gen2 AI infrastructure substantially exceeds supply—despite the fact we are opening new and expanding existing cloud datacenters," said Catz.

Catz added that 43% of Oracle's $80 billion RPO will be recognized as revenue over the next four quarters.

Oracle CTO Larry Ellison said Oracle finished moving most of its Cerner customers to its cloud infrastructure. That move sets the stage for product launches. Oracle's plan for Cerner: Cloud shift, generative code rewrite

Ellison said:

"In Q4, Oracle will start delivering its completely new Ambulatory Clinic Cloud Application Suite to these same customers. This new AI-driven system features an integrated voice interface called the Clinical Digital Assistant that automatically generates doctors' notes and updates Electronic Health Records—saving precious time and improving health data accuracy."

Ellison, who has been relatively quiet about Cerner, said Oracle is set to "transform Cerner and Oracle Health into a high-growth business for years to come."

On a conference call with analysts, Catz said "OCI has emerged as the largest driver of our overall revenue acceleration" and the company is landing workloads via its integrated stack for AI and databases. "This quarter marks the first time our total cloud revenue is more than our total license support revenue," said Catz.

Catz added that OCI consumption revenue was up 63% in the quarter and could have been higher with more capacity. Cloud database services revenue was up 34% and is seen as "the third leg of revenue growth alongside SaaS and OCI," she said.

As for the data center buildout, Catz said she expects overall gross margins to continue to go higher. "While we continue to build data center capacity, overall gross margins will go higher as more of our cloud regions fill up," she said. "We monitor these expenses carefully to ensure gross margin percentages expand as we scale. We are working as quickly as we can to get the cloud capacity built out given the enormity of our backlog and pipeline."

She said capital expenditures should end the fiscal year around $7 billion to $7.5 billion. "we now have 68 customer facing cloud regions live with 47 public cloud regions around the world and another eight being built. 12 of these public cloud regions interconnect with Azure and more locations with Microsoft are coming online soon," said Catz. 

Going forward, Catz said the company's operating margins will improve from cloud scale and bringing Cerner profitability up to Oracle's standards. She said fourth quarter revenue will accelerate from last year and will be significantly higher in fiscal 2025 without the Cerner headwind.

In the fourth quarter, Oracle revenue including Cerner will grow 4% to 6% and without Cerner will grow 6% to 8%. Total cloud revenue without Cerner will grow 20% to 24% in the fourth quarter. Non-GAAP earnings will be between $1.62 to $1.66 a share.

Ellison said:

"In addition to selling infrastructure for training AI large language models, Oracle is completely reengineering its industry specific applications for generative AI."

Later on the conference call, Ellison had some interesting comments about data sovereignty and how the company's autonomous database may make some strange bedfellows. 

Ellison added his take on multi-clouds and opened the door to building OCI regions inside of other hyperscalers in a move that would rhyme with Oracle's Azure partnership. Oracle's Autonomous Database would be the reason multiple clouds would partner with the company. Ellison said:

"We expect the multi-cloud initiative to continue to expand amongst other hyperscalers where we build we build OCI regions inside of and coexisting with their existing cloud infrastructure. We think the world the era of walled gardens is coming to an end. What customers really want is the ability to use multiple clouds that talk to one another. It is really called cloud computing. It's not called a bunch of separate clouds. We expect multi-cloud to become the norm and Oracle DB to be available everywhere. We think that will preserve our franchise in database because the autonomous database is a unique piece of technology, and there's nothing like it in the world. No one else is working on anything like that. No one else is even trying to duplicate the autonomous database. We think it will be it will become a very successful product. In every cloud."

Constellation Research's take

Constellation Research analyst Holger Mueller said:

"Things are just humming for Oracle these days, out of the perfect alignment of OCI, Database and Generative AI revenues. And Oracle has a pretty healthy SaaS business, too. The investment streak into OCI seems to slowly come to an end, with Oracle investing ‘only’ almost $6 billion in CAPEX, practically a third of cash flow. 

It looks like Oracle has managed the build out of its data centers close to where its database customers are due to data residency and privacy. With the Exadata platform being the best place to run the Oracle database, it was only a question of time when local data centers would be available.  

Credit goes to Larry Ellison to see the transformative nature of GenAI earlier than many other tech titans, and then investing substantially into a very large feet of Nvidia servers. The bet is definitely not cheap but that gamble is paying off now. Now all eyes are on the traditionally very strong Q4 of Oracle."