$Oracle (ORCL.US)$ First-quarter revenue, profits, and highly anticipated cloud infrastructure revenue all exceeded expectations. Oracle described the multi-cloud agreement signed with Amazon AWS as a "milestone" event, and soon customers will be able to use the latest Oracle database technology in each hyperscaler's cloud. The prospects for AI demand are optimistic, causing the stock price to soar more than 9% in after-hours trading.

On Monday, September 9th, after the US stock market closed, the leading database software and cloud service company Oracle released its financial report for the first quarter of fiscal year 2025, ending in August. Investors focused on the company's cloud infrastructure revenue growth driven by AI demand.

1) Key Financial Figures:

Revenue: Increased by 7% year-on-year to $13.3 billion, with analyst expectations at $13.23 billion; among which, the highly anticipated cloud infrastructure revenue increased by 45% year-on-year to $2.2 billion, with analyst expectations at $2.18 billion.

EPS: Non-GAAP basis, increased by 17% year-on-year to $1.39 per share, with analyst expectations at $1.33; on a GAAP basis, increased by 20% year-on-year to diluted earnings of $1.03 per share, compared to $0.86 per share the previous year.

Operating profit: On a non-GAAP basis, increased by 14% to $5.7 billion, calculated at a fixed exchange rate, with analyst expectations at $5.59 billion; on a GAAP basis, it was $4 billion.

Operating profit margin: On a non-GAAP basis, it was 43%, with analyst expectations at 42.2%; on a GAAP basis, it was 30%.

Net income: on a non-GAAP basis, it increased by 18% to $4 billion, on a GAAP basis, it was $2.9 billion.

Shareholder return: the quarterly cash dividend is $0.40 per share, to be paid to shareholders of record as of the close of business on October 10, 2024, with a payment date of October 24, 2024.

2) Segment business data:

Remaining performance obligations (RPO): This key indicator increased by 53% to $99 billion, setting a new company record high.

Cloud licensing and on-premise licensing revenue: increased by 7% to $0.87 billion.

Cloud revenue (IaaS plus SaaS): increased by 21% to $5.6 billion, with analysts expecting $5.61 billion.

Among them, cloud application (SaaS) revenue increased by 10% to $3.5 billion, with analysts expecting $3.41 billion. Fusion cloud ERP (SaaS) revenue increased by 16% to $0.9 billion; NetSuite cloud ERP (SaaS) revenue increased by 20% to $0.9 billion.

3) Future performance guidance:

Oracle expects adjusted EPS for the second fiscal quarter to be between $1.45 and $1.49 per share. Revenue is expected to increase by 8% to 10% year-on-year. Cloud revenue is expected to grow by 24% to 25% year-on-year. Expenditures for the fiscal year 2025 are expected to double year-on-year, with revenue showing a double-digit percentage increase.

In the first quarter, 42 new cloud GPU contracts were signed, worth $3 billion. Strong contract backlog will support revenue growth in fiscal year 2025.

The biggest news is the multi-cloud agreement signed with Amazon AWS. Oracle's latest Exadata hardware and database software in the 23ai version will be embedded in AWS cloud data centers. When launched in December this year, AWS customers will have easy access to Oracle databases.

After the financial report was released, Oracle, which fell 1.4% on Monday, rose more than 9% after hours. The stock has risen about 34% this year, outperforming the S&P 500.

Oracle referred to the multi-cloud agreement signed with Amazon AWS as a "milestone," accelerating profit growth.

Oracle CEO Safra Catz stated in the financial report that, "With cloud services becoming Oracle's largest business, both operating profit and EPS growth have accelerated."

The company's Chairman and Chief Technology Officer Larry Ellison elaborated further:

"Oracle has 162 operating and under-construction cloud data centers worldwide. The largest of these data centers is 800 megawatts and will include acres of Nvidia GPU clusters for training large-scale AI models."

Due to previous multi-cloud agreements with Microsoft and Google, the company's database business growth rate is increasing. As of the end of the company's first quarter, Microsoft has launched 7 Oracle cloud regions and is building 24 more, while Google has launched 4 Oracle cloud regions and is building 14 more.

"The recent AWS contract we signed with Amazon is a milestone in the era of multi-cloud. Soon, customers will be able to use the latest Oracle database technology in each hyperscaler cloud."

Oracle CEO Katz stated during the release of the fourth-quarter results ending in May that the company is benefiting from the growing demand for data for training and running AI models. During the quarter, Oracle signed over 30 sales contracts worth a total of $12.5 billion related to AI, and despite the quarter's revenue falling short of market expectations, this positive news about AI demand caused the stock to rise by 13%.

In terms of the most important Oracle Cloud Infrastructure (OCI) revenue, this business revenue accelerated growth in the first quarter (up 45% YoY). In the past 2024 fiscal year, each quarter saw growth rates of 66%, 52%, 49%, and 42%, with the total for the last quarter reaching $2 billion. The company expects the YoY growth rate of OCI revenue to exceed 50% by the end of the 2025 fiscal year in May.

Morgan Stanley pointed out that the scarcity of AI hardware is driving growth in Oracle's OCI business. Jefferies believes that if Oracle wants to achieve double-digit total revenue growth, it will need to see sustained OCI demand and continuous improvement in OCI capacity. At the same time, Oracle's backlog of orders must also remain strong, with remaining obligations increasing 44% YoY to $98 billion last quarter.

How does Wall Street view this? Oracle's AI strategy is very comprehensive, but there is limited room for stock price growth.

In June, Oracle announced infrastructure agreements with Microsoft, OpenAI, and Google, effectively pushing the stock price to a new all-time high of $146.59 in July.

However, despite high expectations for cloud revenue from financial reports and AI, Wall Street analysts believe that the upside potential for Oracle's stock price is limited, with a consensus rating of "buy" and a target price of $145.15, representing less than 3% growth potential.

Some analysts point out that in the current growing demand for artificial intelligence, investors will focus on the development momentum of Oracle Cloud Services. The company is also likely to announce new AI collaboration agreements and unveil plans for a new AI factory at the CloudWorld annual customer conference this week.

Other analysts argue that OCI (Oracle Cloud Infrastructure) is a key part of the company's transformation from a traditional database company to an enterprise cloud service provider, directly competing with Amazon AWS and Microsoft Azure. Given that Oracle has signed contracts with many AI startups and accumulated a large demand for cloud services, it will help drive accelerated revenue growth in the coming quarters.

It is worth mentioning that Wall Street generally recognizes that strategic partnerships will boost Oracle's AI performance. In addition to the "major cooperation" with the "most mysterious" big data company Palantir Technologies, Oracle and NVIDIA have been providing accelerated computing instances and software services to enterprises through OCI for many years. Starting this year, the cooperation in providing AI solutions between the two has expanded.

Other analysis points out that Oracle's AI strategy is very comprehensive, embedding AI capabilities in its cloud infrastructure, databases, enterprise applications, and analytics tools, and continuously enhancing its AI products, especially focusing on machine learning, natural language processing, and computer vision. Its aim is to provide customers with more intelligent, efficient, and automated solutions. In other words, Oracle has a unique advantage and can leverage its AI capabilities to drive growth in its "Cloud Services and License Business" where OCI resides.

The company's Oracle Cloud Infrastructure (OCI) has enhanced AI capabilities, providing powerful data analysis, automation, and decision-making tools for enterprises, and is expected to continuously increase OCI adoption. This strategic move could translate into increased cloud revenue and market share in the highly competitive cloud computing field dominated by companies like Microsoft, Google, and Amazon.

Editor/Somer