ii view: Oracle spending plans make investors nervous

Fourth quarter results to 31 May  

• Revenue up 21% to $19.2 billion
• Adjusted earnings up 24% to $2.11 per share

ii round-up:

Oracle Corp (NYSE:ORCL) has detailed sales and earnings that beat Wall Street hopes, but with the cloud computing giant adding to investor concerns about potential returns on continuing heavy investment.

Fourth-quarter sales up 21% from a year ago to $19.2 billion pushed adjusted earnings up 24% to $2.11 per share. Analysts had forecast outcomes of $19.1 and $1.96 respectively. Plans to raise an additional $20 billion on top of a previously announced $20 billion are expected to contribute to spend of up to $95 billion in the year ahead. Analysts had forecast a figure nearer $72 billion.

Shares in the S&P 500 company fell 10% in US trading having come into these latest results up around 4% so far in 2026. That’s similar to fellow data centre provider Amazon.com Inc (NASDAQ:AMZN) and its AWS business. The S&P 500 index is up 6% year-to-date.  

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As well as being a major database software provider, Oracle has been investing heavily in expanding its network of data centres from which other companies can host their own AI software.

Sales for the year to late May rose 17% to $67.4 billion, driving earnings up 27% to $7.63 per share. Oracle forecasts revenue of $90 billion for the  year ahead and earnings of $8.05 per share.

Remaining Performance Obligations (RPO), a measure of contracted revenues that have not yet been recognised, rose $85 billion from the previous quarter to a record $638 billion. Most of the recent increase has come from large scale AI contracts and is thought to include OpenAI.

A declared quarterly dividend of $0.50 per share and payable to eligible shareholders on 24 July, is unchanged from the previous third quarter.

First-quarter results are likely to be announced mid-September.

ii view:

Started in 1977, Oracle pioneered the first Structured Query Language (SQL) database. Oracle’s more than 400,000 customers include Admiral, Verizon, Siemens and the NHS. Data hosting, or Cloud related revenues came in at 52% of the group total during this latest quarter, up from 43% in Q4 2025. Software sales totalled 35%, down from 44% in Q4 2025. The balance of 13% was split between services and hardware sales.

For investors, expected annual gross capital expenditure of up to $95 billion now needs to be justified by returns and bigger profits. A forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap. There's stiff competition from players such as Amazon and Google owner Alphabet Inc Class A (NASDAQ:GOOGL), while a forecast dividend yield of just under 1% compares to an expected yield of over 2% at rival International Business Machines Corp (NYSE:IBM).

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On the upside, a record RPO of $638 billion now underpins future revenues, with Oracle’s renowned database a major attraction for customers hosting their AI software at Oracle facilities. A wide diversity of both customer types and geographical location exists. A partnership with the US government is now underway following previously announced plans by President Trump to invest billions of dollars in US AI infrastructure, while the Texas headquartered company has successfully achieved growth by acquisition over time.

In all, and despite ongoing risks, Oracle’s ambition to be one of the world’s largest cloud hosting companies continues to be supported by its much-used database software, providing scope for continued longer-term optimism.      

Positives: 

• Product and customer sector diversity
• Successful acquisition track record

Negatives:

• Society concerns for AI use
• Currency moves can impact

The average rating of stock market analysts:

Buy