Oracle Cloud Revenue Jumps 28% in Q1

Key Points

• Oracle’s remaining performance obligations soared 359% to $455 billion in Q1 FY2026, following several multi-billion-dollar cloud infrastructure contracts.

• Cloud infrastructure revenue climbed 55% to $3.3 billion, driving total cloud revenues up 28% to $7.2 billion.

• Free cash flow for the trailing twelve months was negative $5.9 billion, despite robust operating cash flow and continued aggressive investment.

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Oracle (NYSE:ORCL), the enterprise software and cloud powerhouse, delivered its fiscal first quarter 2026 results on September 9, 2025, highlighting breakthrough expansion in cloud contract commitments and rapid cloud infrastructure growth. The key headline was a 359% jump in remaining performance obligations, reflecting several new large, multi-year Oracle Cloud Infrastructure deals. Supported by continued momentum in cloud segments, although the company reported notable cost pressures and high capital spending. On balance, the quarter showed Oracle in a period of strong transformation with historic backlog, rapid cloud gains, and some operational challenges to monitor.

Understanding Oracle's Business and Key Success Factors

Oracle is best known for its database software, enterprise applications such as Enterprise Resource Planning (ERP) systems, and cloud infrastructure services. Its core business has shifted rapidly from selling software licenses and maintenance to providing cloud services, delivering technology as a subscription via the internet.

In recent years, Oracle has focused on expanding cloud services, especially Oracle Cloud Infrastructure (IaaS -- Infrastructure as a Service, such as computing and storage) and Oracle Cloud Applications (SaaS -- Software as a Service, such as ERP, Human Capital Management, and Supply Chain). Key factors for Oracle's ongoing success include a robust global partner network, significant investment in research and development ($9.9 billion in fiscal 2025), and a strategy emphasizing flexibility, interoperability, and integration with other leading cloud platforms. The company's efforts to offer both cloud and on-premise solutions allow customers to transition at their own pace, helping to retain a broad customer base.

Quarterly Highlights: Record Backlog, Surging Cloud, Cost and Cash Issues

The period was defined by a remarkable surge in customer commitments for Oracle's cloud offerings. Remaining performance obligations (RPO), a figure representing all contracted future revenue yet to be recognized, leapt 359% to $455 billion. This result, described by management as "an astonishing quarter," according to Safra Catz, came after the company signed four multi-billion-dollar contracts with three major customers. The vast majority of Oracle's anticipated cloud infrastructure revenue over the next five years is already booked in these obligations, according to management commentary for FY2026 and the subsequent four fiscal years. This marks a dramatic escalation from $138 billion in RPO at the end of the prior quarter.

Cloud infrastructure revenue delivered the single largest percentage gain among Oracle’s segments—up 55% year-over-year to $3.3 billion. That result, from the Oracle Cloud Infrastructure (OCI) product family, reflects strong demand for core computing and storage services hosted in Oracle-owned data centers. Broader cloud revenue, which combines infrastructure and applications, grew 28% to $7.2 billion. The company's Software-as-a-Service (SaaS) cloud applications, such as Fusion Cloud ERP (finance, operations, and HR software delivered over the cloud) and NetSuite Cloud ERP (cloud-native financials and operations software for mid-market and fast-growing businesses), each generated $1.0 billion in revenue and grew 17% and 16%, respectively. Oracle’s strategy of enabling its databases to run on multiple cloud platforms ("multicloud") led to a reported 1,529% gain in multicloud database revenue, albeit from a small starting base.

Software revenue declined 1% year-over-year. Service revenue increased 7% year-over-year, reaching $1.35 billion, while hardware rose 2% to $670 million.

Growth came with significant cost increases. Total operating expenses climbed 14% to $10.65 billion. Restructuring expense was unusually high at $402 million, a more than fivefold jump from the prior year. Research and development expense rose 8%, continuing Oracle’s pattern of sustained innovation investment. Margins compressed despite rising revenue; the company's non-GAAP operating margin declined by one percentage point to 42% from 43% in the prior year. The provision for income taxes more than doubled to $500 million, primarily the result of a $958 million tax charge tied to new U.S. legislation, which reduced reported net income. Operating cash flow over the trailing twelve months reached $21.5 billion, up 13%.

Oracle launched announcements for new artificial intelligence (AI) products, including a forthcoming Oracle AI Database (a service enabling large language models to interact directly with Oracle’s core databases). Large, one-time charges related to restructuring and new tax law sharply reduced reported earnings versus the company's adjusted (non-GAAP) results. There were no new acquisitions in the quarter, and the quarterly dividend remained steady at $0.50 per share. Share repurchases were minimal at $95 million. Accounts payable increased to $8.2 billion.

Looking Ahead: Guidance and Investor Considerations

However, management previewed a "large upward revision" to Oracle Cloud Infrastructure targets, including an expectation that OCI revenue will grow 77% to $18 billion in FY2026. Longer-range projections for Oracle Cloud Infrastructure (OCI) revenue are $32 billion in FY2027, with further growth expected in subsequent periods. Most of this revenue is already secured in customer contracts recorded in RPO for FY2026 and the subsequent four fiscal years, according to management.

For investors and stakeholders, the massive jump in RPO signals high visibility into future revenues but also heightens execution risk. The company will need to deliver substantial new cloud capacity to fulfill its multi-year contractual commitments. Ongoing aggressive capital expenditures and consecutive quarters of negative free cash flow (Q4 FY2025 and Q1 FY2026) warrant attention, as does continued pressure on operating margins. The quarterly dividend was unchanged at $0.50 per share.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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Motley Fool Markets Team is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. The Motley Fool takes ultimate responsibility for the content of these articles. Motley Fool Markets Team cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.