Oracle shares jumped 8.5% before falling back! Strong AI demand fails to dispel concerns about massive cash burn and profits.

Oracle's last fiscal quarter results were stronger than expected, with revenue from its much-watched AI infrastructure cloud business more than doubling year-on-year. However, this impressive financial report did not lead to a continuous rise in the stock price.

On Friday, September 11th, Eastern Time, Oracle (ORCL) shares opened sharply higher by about 7.5%, initially rising over 8.5%, before quickly narrowing gains. The stock briefly turned negative several times in the morning session, and then fell slightly again in the afternoon, hitting a new daily low, with an intraday decline of 1.65%. This high-opening, low-closing pattern contrasts sharply with the market's initial reaction after Thursday's close. Following the release of its earnings report on Thursday, Oracle's shares rose nearly 10% in after-hours trading.

After Thursday's market close, trading was primarily driven by the positive impact of surging AI demand: Oracle not only exceeded expectations in revenue and profit, but its cloud infrastructure business also maintained triple-digit growth, and record residual performance obligations (RPOs) indicate a significant expansion of future revenue reserves. Meanwhile, the market believes that Oracle has alleviated the previously most criticized pressure regarding its "AI cash burn" through customer prepayments and customer-supplied chips.

During Friday's regular trading session, investors began to re-examine another side of the earnings report: AI demand is indeed strong, but Oracle is still expanding its capital investment at an extremely high rate to meet this demand, putting pressure on its cash flow. Whether the data center business can be converted into sufficient profits and free cash flow in the future still needs further verification.

AI cloud infrastructure revenue surged 121%, exceeding all expectations.

From a business performance perspective, Oracle's financial report is quite strong.

Oracle reported a 30% year-over-year increase in revenue to $19.3 billion in its first fiscal quarter, with cloud revenue growing 62% to $11.6 billion. Cloud infrastructure (IaaS) revenue surged 121% year-over-year to $7.4 billion, becoming the core engine driving overall performance growth. Oracle also projects that cloud revenue will grow by 65% to 71% year-over-year in the second fiscal quarter, indicating that demand for AI computing power continues to expand rapidly.

Oracle stated that it delivered more than 300,000 new GPUs and added 850MW of data center capacity in the first fiscal quarter, with the new computing power delivered being approximately three times that of the previous fiscal quarter.

The company also raised its full-year earnings forecast, expecting revenue of at least $90 billion for fiscal year 2027 and non-GAAP earnings per share to $8.10.

Therefore, after the earnings report was released, the market's primary focus was not on whether Oracle had AI needs, but rather on the fact that the demand far exceeded previous expectations. The 121% year-over-year increase in cloud infrastructure revenue further demonstrates that Oracle is accelerating its transformation from a traditional database software company into an AI infrastructure provider.

RPO hit a new record high: an increase of $20.9 billion year-on-year, representing a growth of nearly 46%.

Amid the AI infrastructure investment boom, residual performance obligations (RPO) have become a key metric for measuring the future revenue growth of cloud computing companies. Compared to quarterly revenue, RPO reflects the scale of future business that a company has already contracted for but has not yet recognized revenue from, thus attracting particular attention from investors.

Oracle's revenue-to-profit (RPO) reached $664 billion in the first fiscal quarter, breaking the previous record of $638 billion set in the previous quarter, an increase of $26 billion in a single quarter; compared with the same period last year, it increased by $209 billion, an increase of approximately 46%. The company added more than $30 billion in new AI cloud contracts in the first fiscal quarter, driving the RPO to continue to climb significantly.

More importantly, Oracle stated that approximately half of its $664 billion in RPO is expected to translate into sales revenue over the next 36 months. This means that while these contracts will not be immediately recognized as revenue in the current period, they already provide considerable visibility into revenue growth for years to come.

The rapid expansion of RPO (Recovery Points on Orders) also became a major support for Oracle's stock price surge in after-hours trading on Thursday. Previously, the market's biggest concern was that Oracle's massive investment in the AI infrastructure market might not be enough to secure sufficient orders; however, the continuously record-breaking RPO indicates that, at least on the demand side, Oracle is not short of orders for the time being.

Capital expenditures more than doubled year-on-year; AI expansion remains a cash-burning war.

However, the other side of the order growth is that Oracle must invest huge sums of money to build data centers, purchase GPUs, and expand its computing power supply.

Oracle's capital expenditures in the first fiscal quarter reached approximately $28.5 billion, far exceeding the $8.5 billion in the same period last year, representing a year-on-year increase of more than double. Capital expenditures in just one quarter have already surpassed approximately half of the total capital expenditures for the previous fiscal year.

At the same time, Oracle maintained its capital expenditure forecast of $90 billion to $95 billion for fiscal year 2027. The company's capital expenditures in the previous fiscal year already reached approximately $55.7 billion, meaning that investment this year will see a further significant increase.

Such aggressive investment is directly reflected in cash flow. Oracle's free cash flow for the first fiscal quarter was negative $5.4 billion, which was better than the market's previous expectation of approximately negative $9.56 billion, but the company still needs to rely on external financing to support the expansion of its AI infrastructure.

It was here that the stock price movements began to diverge on Friday.

After the market closed on Thursday, what we saw was a surge in RPO and an explosion in AI demand. By Friday, investors began to ask further questions: Could such a huge backlog of orders ultimately generate enough profit and cash flow to cover the ever-increasing data center investment?

Customer prepayments alleviate cash flow pressure, but realizing profits will still take time.

One noteworthy change in Oracle's latest financial report is that the company is trying to change its traditional AI infrastructure investment model in order to reduce its own capital burden.

Reuters points out that a significant portion of Oracle's new contracts do not require the company to rely entirely on its own capital investment, including arrangements involving customer upfront payments and customer-supplied chips. This means that while RPO has increased substantially, the new orders do not necessarily correspond to a corresponding increase in Oracle's capital expenditure.

This is why the market quickly reduced its concerns about Oracle's "cash burn" after the market closed on Thursday.

However, this model does not completely solve the cash flow problem. Morningstar analyst Luke Yang points out that even if Oracle requires customers to partially bear hardware costs, the company's cash flow situation will not fundamentally change in the short term; cloud revenue needs to reach a sufficiently large scale to simultaneously support continued capacity expansion and achieve positive free cash flow.

At the same time, Oracle still plans to raise approximately $40 billion through debt and equity financing this fiscal year, including a $20 billion stock offering completed in the first fiscal quarter.

Therefore, for investors, Oracle's core concern has gradually shifted from "whether there are enough AI orders" to "how high the profitability quality of AI orders is".

After-hours trading saw a surge in demand, with Friday's focus shifting to valuation and cash flow.

Judging from the stock price trend, Friday's high opening and low closing largely reflects that the market completed two different pricing rounds within a few hours.

When Oracle's earnings report was released after the market closed on Thursday, the market immediately traded on the better-than-expected results, the 121% surge in IaaS revenue, the record RPO, and the optimistic expectations that AI demand far exceeded supply. As a result, Oracle's stock price rose by nearly 10% at one point.

On Friday, as more investors participated in the trading, the positive news continued to drive the stock price up by more than 8.5% at one point. However, after the positive news had been fully priced in after hours, the market began to refocus its attention on capital expenditures, financing needs, profit margins, and free cash flow.

Some analysts say that while Oracle has strong demand for AI, its high capital expenditures remain a problem that the market needs to continue to monitor; while some Wall Street analysts believe that the company's latest earnings report has significantly alleviated previous concerns about further runaway capital expenditures.

This also explains why Oracle's stock price did not simply switch from "rising" to "falling": both bulls and bears could actually find evidence in the same financial report.

Bulls see 121% IaaS growth, $664 billion in RPO, and continued explosive growth in AI cloud demand; bears see $28.5 billion in quarterly capital expenditures, negative free cash flow, and annual capital expenditure plans of $90 billion to $95 billion in the future.

The market no longer doubts the demand for AI and has begun to test the return on AI investments.

Therefore, Oracle's intraday swings from over 8.5% gains to a 1.65% drop on Friday do not necessarily mean that Wall Street has suddenly rejected Oracle's AI story.

On the contrary, this financial report further proves the authenticity of the demand for AI infrastructure, and that the growth rate of demand is still significantly faster than Oracle's current supply capacity.

What has truly changed is the market's focus.

Before the earnings report, investors were worried that Oracle might overspend on AI demand; after the report, the market began to acknowledge that AI demand was indeed strong, but further questioned whether these huge orders could ultimately translate into sufficient profits and free cash flow.

Reuters, citing analysts, reported that Oracle has made progress in balancing rapid growth with investment pressures, but the company still faces risks such as debt, data center profitability, and the pace of cash flow improvement.

This means that what Oracle really needs to prove to the market in the next stage is not just whether it can win AI orders, but whether it can convert record RPO into high-quality revenue, profit and cash returns while meeting the AI computing power requirements.

This may be the key reason why Oracle's stock price opened high and then fell after the release of its strong earnings report.

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