Why Oracle Shares Surged 7% Pre-Market? Record RPO, Full-Year Cloud Guidance Raised Substantially

TradingKey - In Friday's U.S. pre-market trading, Oracle (ORCL) shares jumped over 7% at one point, as its latest first-fiscal-quarter revenue, adjusted EPS, and order backlog all exceeded market expectations, while the company modestly raised its full-year earnings target as AI infrastructure demand continues to drive rapid cloud expansion.

Source: TradingView

Oracle's fiscal 2027 first-quarter revenue reached $19.345 billion, up 30% year-over-year and above market expectations of approximately $19.1 billion; adjusted EPS rose 30% to $1.92, also significantly beating analysts' estimates of $1.74 to $1.75. The company's GAAP net income climbed to $4.76 billion, up 63% year-over-year, indicating that AI cloud expansion has begun to translate into stronger earnings growth.

In the first fiscal quarter, Oracle's total cloud revenue reached $11.6 billion, up 62% year-over-year. Among this, cloud infrastructure revenue surged 121% to $7.4 billion, exceeding market expectations of around $7.19 billion. It should be noted that $11.6 billion represents the combined revenue of IaaS and SaaS, whereas $7.4 billion refers specifically to OCI infrastructure revenue, so the two figures should not be conflated.

A continuing expansion in order backlog was another major reason for the stock's pre-market strength. As of the end of August, Oracle's remaining performance obligations (RPO) reached $664 billion, up from $638 billion in the previous quarter and above analysts' expectations of roughly $639.9 billion.

The company signed more than $30 billion in new AI cloud contracts in the first fiscal quarter and stated that these additional contracts would not further increase its existing financing plans, easing some market concerns over 'more orders leading to a larger funding gap.'

At the same time, Oracle raised its fiscal 2027 adjusted EPS target from $8.05 to $8.10 and expected full-year revenue to reach at least $90 billion. For the second fiscal quarter, the company expects total revenue to grow 30% to 34% year-over-year, cloud revenue in USD terms to grow 65% to 71%, and adjusted EPS to be $1.85 to $1.93. This indicates that Oracle's overall cloud business will maintain rapid growth, with OCI expected to remain the primary driver and potentially offset some of the pressure from declining legacy software revenue.

However, capital expenditures remain the primary risk in Oracle's AI strategy. In the first fiscal quarter, the company's capex reached approximately $28.5 billion, significantly higher than the market estimate of $19.2 billion, while free cash flow for the period was around negative $5 billion. The company expects fiscal 2027 capex to reach $90 billion to $95 billion, with net cash capex not exceeding $70 billion. Massive data center construction costs could still increase debt and equity financing pressures.

To ease its financial burden, Oracle is expanding collaboration models such as customer prepayments, bring-your-own-hardware, and vendor co-investments. Management emphasized that not all data center projects need to be funded independently by Oracle, and new AI contracts have not altered existing financing arrangements. If these models can reduce upfront cash outlays and generate stable cash flows after capacity ramps up, market concerns regarding Oracle's balance sheet are expected to ease further.