Sept 10 (Reuters) - Oracle topped Wall Street estimates for quarterly results on Thursday and reported a smaller cash burn than expected, offering investors confidence that its hefty AI investments were generating solid returns without squeezing its balance sheet.
Shares of the company, which had slumped more than 21% so far this year, were up 4% in extended trading after Oracle reported a jump in revenue backlog — a key metric indicating future revenue growth prospects.
Oracle is benefiting from strong
demand for its cloud computing services from surging enterprise spending on AI. Its efforts to expand its data center footprint are helping the company secure more enterprise contracts.
BACKLOG SURGE SIGNALS STRONG AI DEMAND
In the first fiscal quarter, Oracle booked more than $30 billion of additional AI cloud contracts, boosting its revenue backlog to $664 billion. That topped analysts' estimate of $639.89 billion, according to data from Visible Alpha.
But more importantly, Oracle said that most of the newly contracted revenue will not require large cash outlays for chips, helping it maintain its annual spending target of $90 billion to $95 billion.
"The vast majority of those orders were via prepay or bring-your-own-hardware or a similar mechanic, so they don't require incremental capital from Oracle," the company's finance chief, Hilary Maxson, said in a media briefing.
"And we started to see a strong conversion of our (backlog) into revenues this quarter, driving our cloud infrastructure results."
The company expects around half of its current backlog to convert into sales within the next 36 months.
"The AI ROI story just got real for Oracle and its customers. Strong results mean Oracle's customers are voting with their wallets, and Oracle needs to continue to push the narrative that backlog growth isn't just an OpenAI story anymore," said Rebecca Wettemann, CEO of Valoir, a technology research and advisory firm.
IMPROVING BALANCE SHEET QUELLS CAPITAL SPENDING FEARS
Oracle's stock has taken a beating this year on growing investor concerns over soaring capital expenditure that has pressured its free cash flow. In July, S&P Global downgraded Oracle's credit rating, citing weak cash flow and rising business risk.
Investors have also been worried about Oracle's Stargate project amid reported AI infrastructure buildout delays tied to labor, permitting approvals and power availability.
But Oracle burned less cash than analysts had expected, showing a negative free cash flow of $5.40 billion versus expectations of negative free cash flow of $9.56 billion, according to data from LSEG.
While that cash burn is higher than in the previous quarter, it was well below negative free cash flow of $11.48 billion in the company's third quarter of fiscal 2026.
The company reported capital expenditure of $28.50 billion in the first quarter, but highlighted that about $11.36 billion of that spending was covered by prepayments from its customers.
"The new disclosure on customer prepayments is a very bullish signal ... And this is probably the first quarter in a while where the balance sheet actually improved, so that allows them to say there's no incremental impact on their capex plans," said Bill Birmingham, managing director at REX Financial.
Analysts were expecting capital spending of $19.38 billion.
Oracle's first-quarter revenue rose 30% to $19.3 billion, beating estimates of $19.14 billion. Adjusted earnings of $1.92 per share topped expectations of $1.74.
The company raised its fiscal 2027 adjusted earnings forecast to $8.10 per share from $8.05 previously. Analysts on average expect annual profit of $8.07 per share. It forecast revenue of at least $90 billion for fiscal 2027.
(Reporting by Deborah Sophia in Bengaluru and Stephen Nellis in San Francisco; Additional reporting by Nishara Karuvalli Pathikkal in Bengaluru; Editing by Arun Koyyur, Sayantani Ghosh and Matthew Lewis)
