Why did Oracle deliver the strongest financial report in history, yet its stock price fell?

Original text丨Li Hailun, Tencent Technology

Oracle has delivered 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, resulting in negative free cash flow for the year.

On June 10, U.S. local time, Oracle released its financial report for the fourth quarter of fiscal year 2026 (corresponding to February 2025 to May 2026) and for the entire year.

The financial report shows that Oracle's total revenue for the fourth quarter was $19.2 billion, a year-on-year increase of 21%. Excluding the impact of exchange rate fluctuations, the year-on-year growth was 20%, exceeding market expectations. According to data provided by LSEG, analysts had previously expected Oracle's fourth-quarter revenue to be $19.1 billion.

Oracle's fourth-quarter financial data

Operating profit was $6.1 billion, an increase of 20% compared to $5.1 billion in the same period last year; on a non-GAAP basis, Oracle's adjusted operating profit for the fourth quarter was $8.6 billion, compared to $7 billion in the same period last year.

The operating profit margin was 32%, compared to 33% in the same period last year. On a non-GAAP basis, Oracle's operating profit margin for the fourth quarter was 45%, compared to 44% in the same period last year.

Net profit was $4.22 billion, a year-on-year increase of 23% compared to $3.43 billion in the same period last year. On a non-GAAP basis, Oracle's net profit for the fourth quarter was $6.2 billion, a 26% increase compared to $4.9 billion in the same period last year.

Diluted earnings per share were $1.45, a 21% increase compared to diluted earnings per share of $1.19 in the same period last year. On a non-GAAP basis, diluted earnings per share were $2.11, a 24% increase compared to $1.70 in the same period last year.

For the entire year, Oracle's total revenue was $67.4 billion, a year-on-year increase of 17%, setting a historical record. Among them, cloud business revenue for the year was $34 billion, a year-on-year increase of 39%, while software revenue was $24.5 billion, a year-on-year decline of 1%.

Oracle's financial data for fiscal year 2026

Net profit was $17 billion, a year-on-year increase of 36%. On a non-GAAP basis, net profit was $22.2 billion, a year-on-year increase of 29%. Earnings per share were $5.83, a year-on-year increase of 34%. On a non-GAAP basis, earnings per share were $7.63, a year-on-year increase of 27%.

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

Oracle's operating cash flow for fiscal year 2026 was $32 billion, a year-on-year increase of 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, which will be paid on July 24, 2026, to shareholders registered as of the close of business on July 10, 2026.

After the financial report was released, Oracle's stock price fell by as much as 5% in after-hours trading. Previously, Oracle's stock price had risen 3% year-to-date, underperforming the S&P 500 index, which rose 6%.

01 Cloud Business Supports Half of Oracle's Revenue

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

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

Oracle's financial data by business segment

In contrast, the cloud application business (SaaS) generated $4.1 billion in revenue in the fourth quarter, with a growth rate of 10%, which is stable but unremarkable.

Meanwhile, traditional software licensing and support business continued to shrink, with quarterly revenue of $6.8 billion, a year-on-year decline of 2%, indicating that the trend of customers migrating to the cloud has not stopped. The service and hardware businesses grew by 13% and 9% respectively, but their smaller scale had limited impact on the overall trend of the company.

Both the database and application businesses benefited from Oracle's early adoption of AI. Oracle's multi-cloud AI database revenue grew by 404% in the fourth quarter, with order volume increasing by 325% year-on-year, making it the fastest-growing business in the company's history. This growth rate confirms that AI-related demand is not limited to infrastructure but is penetrating into upstream data management.

In the financial report, Oracle attributed its performance growth to the broad demand for the company's cloud technology and application suite. From the change in revenue structure, Oracle has basically completed its transformation from a database software company to a cloud infrastructure provider, with the demand for computing power driven by AI being the biggest impetus for this transformation.

02 The AI Bet Behind $638 Billion in Orders

The most striking figure in the financial report is the remaining performance obligations, which is the total amount of orders that have been contracted but not yet recognized as revenue.

As of the end of the fourth quarter, this figure reached $638 billion, up from $553 billion a quarter earlier, representing a net increase of $85 billion in three months, with a year-on-year growth rate of 363%. Wall Street analysts had previously predicted this figure to be around $590 billion to $600 billion, with the actual data far exceeding expectations.

Bank of America analysts pointed out a key piece of information in their report: more than half of the $638 billion comes from OpenAI. In other words, Oracle's largest customer is an AI startup that is itself burning a lot of cash.

Oracle explained the composition of these orders in its statement. Most of the new RPO comes from large-scale AI contracts, where customers either prepay for GPU purchases or buy GPUs themselves to hand over to Oracle for deployment. Currently, the total amount of contracts where customers bear hardware costs is $75 billion. Oracle explained that this arrangement significantly alleviates the pressure on the company to raise funds for building AI data centers.

This structure reduces some of Oracle's financial risks. However, the problem is that if the largest customer itself faces funding pressure or if the overall demand in the AI industry fluctuates, the highly concentrated order structure itself becomes a risk point.

Reuters analysis suggests that the software industry is facing investor concerns that AI tools may replace traditional software products, which could pull enterprise customers away from the traditional software sector, posing an additional challenge to Oracle.

03 Huge Orders Bring Heavier Capital Expenditures

Supporting Oracle's $638 billion in orders is massive capital investment. In the fourth quarter, Oracle's capital expenditures were $15.9 billion, totaling $55.7 billion for the year, significantly higher than Oracle's previous guidance of $50 billion.

Oracle's free cash flow turned negative at $23.7 billion

This directly led to a deterioration in free cash flow. Although the annual operating cash flow of $32 billion set a record, after deducting capital expenditures, free cash flow became negative $23.7 billion.

To fill the funding gap, Oracle raised $43 billion through debt financing and $5 billion through equity financing in fiscal year 2026.

The company also announced plans to raise another $40 billion in fiscal year 2027, which includes the previously disclosed $20 billion in equity financing. Oracle stated that it will not issue new debt in the second half of fiscal year 2026, but this news did not stabilize market sentiment.

CNBC believes that the previous financing actions have raised investor concerns, as there is uncertainty in the market about whether the demand for AI can absorb such a massive influx of new capital. When the company again increased the scale of financing, these concerns intensified.

Reuters further analyzed that Oracle's performance may exacerbate investors' concerns in two aspects: first, the disruption of traditional software demand driven by AI may pull enterprise customers away from the traditional software sector; second, the high debt level on Oracle's balance sheet itself poses financial risks.

TD Cowen analyst Derrick Wood pointed out that Oracle's stock price had previously risen, possibly due to investors being more optimistic about the prospects of computing service providers and Oracle's most important customer, OpenAI.

In other words, the market had already accumulated some gains and optimistic expectations before the financial report was released. When the new financing plan and higher-than-expected capital expenditures were made public, some investors chose to reassess risks or take profits, which amplified the stock price correction.

04 Revenue Target of $90 Billion for Fiscal Year 2027

Oracle has provided clear expectations for the next phase of growth.

For the first quarter of fiscal year 2027, total revenue growth is expected to be between 27% and 29%, with adjusted earnings per share expected to be between $1.72 and $1.76. The median of these two guidance figures is above analyst expectations. In addition, the revenue growth guidance for the cloud business is set at 57% to 63%, continuing to maintain high growth momentum.

For the entire fiscal year 2027, Oracle reiterated its revenue target of $90 billion, while raising the adjusted earnings per share guidance to $8.05.

The company explained in its statement that this growth rate is calculated after excluding one-time projects such as the sale of the Ampere chip business and Bloom Energy warrants in fiscal year 2026, with the actual year-on-year growth rate being about 18%. Analysts had previously expected earnings per share of $8.01 and revenue of $88.9 billion.

05 Key Focus on AI in Healthcare

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

Oracle's health application suite will launch an AI-based Cerner patient care management system for hospitals and clinics, and this product is expected to boost the overall growth rate of the health business to double digits in fiscal year 2027. Oracle emphasized in its statement that this is just the beginning of the expansion of its health business.

In a longer-term technological outlook, Oracle believes that AI is about to fundamentally change healthcare. The company described three specific directions: Oracle's health AI system will reduce the time doctors spend in front of computers, allowing them to spend more time with patients; AI molecular design models are expected to accelerate researchers' development of life-saving drugs; and the new AI clinical trial system aims to enable regulators to quickly review and approve clinical trial results, allowing patients to access new drugs faster.

Oracle does not want to be just an AI computing power supplier; it also hopes to embed AI capabilities into specific processes such as 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 truly convert into scaled revenue still needs time to verify.