Oracle finally becomes a cloud company, helped by ‘enormous’ AI demand

United States

Oracle Corp. has reached an important milestone in its decade-long shift to becoming a cloud-computing company — revenue from the cloud surpassed its traditional software licensing revenue for the first time.

Oracle Chief Executive Safra Catz touted that fact on the company’s conference call with analysts Monday while discussing its better-than-expected fiscal third-quarter earnings. Oracle shares ORCL, +1.52% jumped 14% in after-hours trading, ending the session at $ 130.50.

The company’s total cloud revenue jumped 24% in the quarter, while its software-licensing revenue was down 3%. Executives talked about continued strong demand for its cloud services, and how Oracle is building more data centers to keep up with demand, which is also being fueled by the need for more generative-AI infrastructure.

“We have enormous amounts of demand,” Catz said, adding that there are many new customers that have not reached their capacity yet. When asked about her projections to nearly double capital spending to $ 10 billion in fiscal 2025, she said it was necessary to build out more data centers and expand existing ones.

Oracle co-founder and Chief Technology Officer Larry Ellison described one massive data center in Salt Lake City currently under construction. ”You can park eight Boeing 747s nose-to-tail in that one data center,” he said.

The company is also getting a lot of interest from governments seeking to create so-called sovereign clouds, a cloud infrastructure designed exclusively for the security needs of government entities and their institutions. 

However, even while projecting a 22% to 24% increase in total cloud revenue for the fiscal fourth quarter, Catz also guided non-GAAP earnings to a range of down 2% to flattish, between $ 1.62 and $ 1.66 share. She noted that as the company’s cloud capacity fills up, margins will rise. Oracle may also be seeing an impact from its big spending and focus on low prices for cloud services.

Also read: Oracle was late in the cloud but now its stock could win big.

With its massive data-center buildout and crossover in revenue, Oracle can now truly call itself a major player in the cloud. But how sustainable that demand is remains the big question, as many investors try to find companies besides the obvious chip makers — like Nvidia Corp. NVDA, -2.00% — that will benefit from AI.