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

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

1) Key Financial Figures:

Revenue: Increased by 7% year-on-year to $13.3 billion, compared to analysts' expectations of $13.23 billion; notably, cloud infrastructure revenue, which received much attention, increased by 45% year-on-year to $2.2 billion, compared to analysts' expectations of $2.18 billion.

EPS: Non-GAAP basis, increased by 17% to $1.39 per share, compared to analysts' expectations of $1.33 per share; GAAP basis, increased by 20% to a diluted EPS of $1.03, compared to $0.86 in the same period last year.

Operating profit: On a non-GAAP basis, increased by 14% year-on-year to $5.7 billion at a fixed exchange rate, compared to analysts' expectations of $5.59 billion; GAAP basis was $4 billion.

Operating profit margin: On a non-GAAP basis, it was 43%, compared to analysts' expectations of 42.2%; on a GAAP basis, it was 30%.

Net income: Non-GAAP basis, up 18% year-on-year to $4 billion, GAAP basis is $2.9 billion;

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

2) Subsidiary business data:

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

Cloud licensing and on-premises licensing revenue: up 7% year-on-year to $0.87 billion;

Cloud revenue (IaaS and SaaS): up 21% year-on-year to $5.6 billion, with analyst expectations of $5.61 billion;

Among them, cloud application (SaaS) revenue increased by 10% year-on-year to $3.5 billion, with analyst expectations of $3.41 billion; Fusion Cloud ERP (SaaS) revenue increased by 16% year-on-year to $0.9 billion; NetSuite Cloud ERP (SaaS) revenue increased by 20% year-on-year to $0.9 billion.

3) Future performance guidance:

Oracle expects adjusted EPS for the second quarter to be between $1.45 and $1.49 per share. Revenue is expected to increase by 8% to 10% year over year, with cloud revenue expected to grow by 24%-25% year over year. It is expected that spending in the 2025 fiscal year will double year over 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 continued revenue growth in the 2025 fiscal year.

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

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

Oracle described the multi-cloud agreement 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.

Company Chairman and CTO Larry Ellison provided more specific explanations:

Oracle has 162 cloud data centers operating and under construction globally. The largest of these data centers is 800 megawatts and will contain 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, with another 24 under construction. Google has launched 4 Oracle Cloud regions, with another 14 under construction.

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

Oracle CEO, Katz, stated during the release of the fourth quarter earnings ending in May that the company is benefiting from the growing demand for training and running AI models. During the quarter, more than 30 sales contracts related to AI were signed, totaling $12.5 billion. Although the quarterly revenue was lower than market expectations, this positive news regarding AI demand caused the stock to rise by 13% upon hearing the news.

In terms of the most important revenue from cloud infrastructure (OCI), this business revenue accelerated its growth in the first quarter (45% YoY growth). In the past fiscal year 2024, each quarter saw growth of 66%, 52%, 49%, and 42%, with the total amount reaching $2 billion in the last quarter. The company expects that for the fiscal year ending in May 2025, the YoY growth rate of OCI revenue will exceed 50%.

Morgan Stanley noted that the scarcity of AI hardware is driving the growth of Oracle's OCI business. Jefferies believes that if Oracle wants to achieve double-digit revenue growth, it needs to see continuous OCI demand and improving OCI capacity. Additionally, Oracle's strong backlog growth is crucial, with outstanding contractual obligations in the previous quarter increasing by 44% YoY to $98 billion.

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

In June, Oracle announced cloud 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 the financial report and the cloud income brought by AI, Wall Street analysts believe that there is limited upside potential for Oracle's stock price. Their consensus rating is "buy", with a target price of $145.15, representing less than 3% of the potential increase.

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

Other analysts have suggested 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, competing directly 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 widely recognizes that strategic partnerships will boost Oracle's AI performance. In addition to a "major partnership" with the "silicon valley's most secretive" big data company Palantir Technologies, Oracle has been providing accelerated computing instances and software services to enterprises in partnership with NVIDIA through OCI for many years. This year, the cooperation between the two companies in providing AI solutions expanded.

Another analysis points out that Oracle's AI strategy is very comprehensive, embedding AI capabilities into its cloud infrastructure, databases, enterprise applications, and analytics tools, and continuously enhancing its AI products, with a particular focus on machine learning, natural language processing, and computer vision, aiming to provide customers with smarter, more efficient, and more automated solutions. In other words, Oracle has unique advantages and can leverage its AI capabilities to drive growth in the "cloud services and software licensing business" where OCI is located.

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 continue increasing OCI adoption. This strategic move may translate into increased cloud income and an increase in market share in the fiercely competitive cloud computing field dominated by companies such as Microsoft, Google, and Amazon.

Editor/Somer