(Bloomberg) — Oracle Corp. reported better-than-expected bookings, suggesting continued momentum for the company’s efforts to compete in cloud computing with its larger technology rivals.
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Separately, Oracle announced cloud partnership agreements with OpenAI startup Microsoft Corp. and Alphabet Inc.’s Google. Shares jumped about 9% in extended trading.
Total remaining performance obligations, a measure of future contracted sales, increased 44% to $98 billion in the fiscal fourth quarter, the company said Tuesday in a statement. Analysts on average estimated $73.9 billion.
The Austin-based company, known for its database software, is focused on expanding its cloud infrastructure business — which rents computing power and storage — to compete with Amazon.com Inc., Microsoft and Google. Although this division represents only a small part of total revenue, investors view it as Oracle’s main bet for future growth.
Great cloud deals
Over the past two quarters, “Oracle has signed the largest sales deals in our history, driven by enormous demand for training large AI language models in Oracle Cloud,” said Safra Catz, CEO, in the press release.
Revenue growth will increase by double digits in the current fiscal year ending May 2025, fueled by strong demand for artificial intelligence workloads, Catz said. Growth is expected to accelerate throughout the year as “cloud unit capacity begins to catch up with demand,” she added.
Oracle also announced a new agreement to make its namesake database available on Google’s cloud infrastructure. A similar deal with Microsoft, announced in late 2023, “will supercharge the growth of our cloud database,” President Larry Ellison said in the release.
OpenAI, which has received billions in funding from Microsoft, will use Oracle’s cloud infrastructure for “additional capacity,” the companies said in a separate statement. Oracle’s cloud has developed a reputation for success with generative AI startups — the company has touted clients including Reka, MosaicML and Elon Musk’s xAI. Artificial intelligence technology requires enormous computing power to operate.
An “undeniable” dynamic
The momentum in Oracle’s cloud infrastructure business “is undeniable and the OpenAI announcement creates another positive data point in AI,” wrote Kirk Materne, an analyst at Evercore ISI.
Catz, in a conference call after the earnings release, said the cloud infrastructure unit would grow more than 50% in the current fiscal year.
Shares hit a high of $137.37 in late trading after closing at $123.88 in New York. The stock has surged nearly 18% this year, hitting a record high in March.
Revenue at the cloud unit that rents computing power and storage rose 42% to $2 billion in the period ended May 31. Analysts estimate it on average at $1.97 billion, according to data compiled by Bloomberg.
Total revenue rose 3.3% to $14.3 billion, compared with the average estimate of $14.6 billion. Profit, excluding certain items, was $1.63 per share. Analysts were forecasting $1.65.
Software lull
Disappointing results from rivals such as Salesforce Inc. and Workday Inc. in recent weeks have fueled investor concern that technology budgets are being diverted from application software to artificial intelligence tools. Sales of Oracle’s cloud applications business, including its Fusion applications for corporate finance, increased 10% to $3.3 billion. That’s a slowdown from the roughly 14% growth the unit has seen in recent quarters and lower than analysts’ estimates.
The new partnerships should accelerate growth in Oracle’s cloud infrastructure business, which could help offset slowing applications, wrote Anurag Rana, an analyst at Bloomberg Intelligence.
Oracle’s results were shaken by its healthcare unit, which includes Cerner, the electronic health records company acquired by Oracle in June 2022 for $28 billion. The company is currently focused on transitioning its existing software business to the cloud, although it has faced setbacks such as customer departures and the renegotiation of a flagship federal contract.
Cerner hurt revenue growth in fiscal 2024 by 2%, Catz said on the call. The company will no longer report Cerner’s financial results in the earnings period, however, “because it is now operating in growth mode,” it said.
Catz also announced that Oracle would exit its advertising business, which generated only $300 million in the fiscal year ended May 31.
(Updates with additional comments from the company beginning in the 10th paragraph)
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