Oracle Q3 better than expected, raises outlook amid AI demand

Oracle handily topped expectations for the fiscal third quarter and said its cloud infrastructure as a service revenue was up 84% from a year ago.

The company reported third quarter earnings of $1.27 a share on revenue of $17.2 billion, up 22% from a year ago. Non-GAAP earnings for the quarter were $1.79 a share.

Wall Street was expecting Oracle to report non-GAAP earnings of $1.69 a share on revenue of $16.91 billion.

By the numbers:

• Oracle cloud revenue, which includes IaaS and SaaS, was $8.9 billion in the third quarter, up 44% from a year ago.
• IaaS revenue was $4.9 billion, up 84% from a year ago.
• Third quarter Oracle cloud database revenue, which is included in IaaS sales, was up 35%.
• SaaS revenue was $4 billion, up 13% from a year ago. Fusion Cloud ERP revenue was up 17% and NetSuite revenue was up 14%.
• Remaining performance obligations were $553 billion.

Oracle said, "most of the increase in RPO in Q3 related to large scale AI contracts where Oracle does not expect to have to raise any incremental funds to support these contracts."

• For Middle East AI infrastructure, war is a risk factor
• Oracle to raise $45 billion to $50 billion in debt, equity for data center buildout
• Oracle CTO Larry Ellison on AI use cases for healthcare, agriculture, climate change

As for the outlook, Oracle noted the following:

• Oracle's big customers are in better financial position after raising funds and the company said it expects to " to comfortably meet and likely exceed our revenue growth rate forecast for FY27 and beyond."
• The company is building more SaaS applications for industries via AI driving more profit.
• For the fourth quarter, Oracle projected revenue to grow 18% to 20%. Cloud revenue will grow 44% and non-GAAP earnings will be between $1.96 a share and $2 a share. In constant currency, Oracle's fourth quarter non-GAAP earnings will be between $1.92 a share to $1.96 a share.
• Oracle said fiscal 2026 revenue will be $67 billion with capital expenditures of $50 billion. For fiscal 2027, Oracle is projecting revenue of $90 billion.

Ahead of Oracle’s earnings report, the company put out a statement countering a Bloomberg article noting OpenAI pulled back on a deal because facilities didn’t have the latest Nvidia GPUs. Bloomberg reported that the companies ended plans to expand a data center in Abilene, TX. Oracle reportedly secured the site, ordered the hardware and spent on construction and staff with the expectation of expansion in the future.

Oracle shot back in a post on X and said the Bloomberg report, followed by CNBC, was false and incorrect. Oracle said existing projects were on track but didn’t address the expansion plans.

The tone of the press release, which focused on numbers and not quotes from executives, and the earnings call, which was led by Doug Kehring, Principal Financial Officer, was notable. Oracle is clearly focusing on financials and its investment grade debt rating.

Speaking on the company's earnings call, Kehring said the company is diversifying its cloud customer base and inked contracts with Nvidia and Meta.

Clay Magouyrk, CEO, said on the call:

• "We have ambitious, achievable goals for capacity delivery worldwide. OCI now operates 147 live customer facing regions with 64 more regions planned in the last quarter. We handed over close to 400 megawatts of data center capacity to more customers."
• "We recently launched enhanced networking to all OCI customers and other services like our AI agent service. However, we cannot deliver everything ourselves, and we rely on our rapidly expanding partner community to provide the best experience on OCI."
• The four segments of our infrastructure business are growing at incredible rates. This will contribute to a continued acceleration in our infrastructure revenue in the coming quarters."

CTO Larry Ellison said Oracle is bringing together its software stack with AI to enable more AI.

Ellison said:

"With the development of the Oracle AI database and the Oracle AI data platform, we're bringing all three layers of our software stacked together to solve another very important problem: enabling the latest and most powerful AI models to do multi step reasoning on all your private enterprise data, while keeping that data private and secure. Training AI models on public data is the largest, fastest growing business in history. AI models reasoning on private data will be an even larger and more valuable market."