Oracle’s AI backlog grows as cash flow and margins weaken

Oracle reported fiscal first-quarter 2027 revenue of US$19.3 billion, up 30%, while non-GAAP earnings per share reached US$1.92, ahead of the US$1.74 analyst estimate. Cloud revenue rose 62% to US$11.6 billion, with cloud infrastructure revenue increasing 121%.

More than US$30 billion in new AI cloud contracts lifted Oracle’s remaining performance obligations to US$664 billion, above the US$639.89 billion analysts had modelled. Management expects about half of that amount to convert into revenue within 36 months, although the timing and profitability of that conversion remain uncertain.

The cash-flow picture was less supportive. Free cash flow was negative US$5.40 billion, while capital spending reached US$28.50 billion. Customer prepayments covered US$11.36 billion of that spending. Oracle expects to invest US$90 billion to US$95 billion in fiscal 2027 and has not provided a firm timetable for positive free cash flow.

Margins also came under pressure as non-GAAP gross margin fell to 61%, down about 770 basis points from a year earlier. Oracle disclosed a further US$700 million in restructuring costs, taking its fiscal 2026 restructuring plan to roughly US$2.8 billion. Management has described fiscal 2027 and 2028 as peak capital-expenditure years.

The market response reflected that tension. Oracle shares rose as much as 7.8% before closing about 2% lower the following day. Barclays and UBS raised their price targets, while BMO Capital, RBC and Stifel lowered theirs. Yahoo Finance reported that Morgan Stanley was seeking evidence of gross-margin stabilisation, with Oracle’s 28 October Financial Analyst Day set to provide a further test of backlog conversion, infrastructure timing and profitability.