Oracle exploded, these numbers and charts drove the market and AI trading crazy

Oracle has demonstrated to the market that in the AI-driven frenzy, future promises are far more attractive than current performance.

Although the software giant's recently announced Q1 results fell short of expectations, its stock price soared in after-hours trading. The reason is that a massive deal signed with OpenAI led to a significant increase in order volume and provided aggressive growth expectations for its cloud infrastructure business.

CEO Safra Catz released a statement announcing that the company signed several multi-billion dollar contracts in the first fiscal quarter, resulting in a surge in the company's backlog. Meanwhile, Oracle's cloud infrastructure business is expected to grow by 77% this fiscal year, up from a previous forecast of 70%, reaching $18 billion.

Following the announcement, Oracle's stock surged 27% in after-hours trading, reaching a historic high, making it the first U.S. company with a market capitalization exceeding $500 billion and a single-day increase of over 25%. This clearly indicates that in the current investment environment, the grand narrative built around AI has overshadowed traditional financial metrics, and investors are willing to pay a high premium for growth prospects.

Backlog is "stunning," and demand continues to grow

The core data that ignited market sentiment is Oracle's rapidly expanding "remaining performance obligations" (RPO), which refers to the amount of signed contracts that have not yet been recognized as revenue.

Safra Catz stated in the announcement that the company signed four multi-billion dollar contracts with three different clients in the first fiscal quarter. This directly led to a stunning year-over-year increase of 359% in Oracle's RPO backlog, reaching $455 billion.

Catz described this figure as "stunning" and emphasized that "the market demand for Oracle Cloud Infrastructure is still growing."

She further revealed that in the coming months, the company expects to sign contracts with "several other multi-billion dollar clients," at which point the total RPO could exceed $500 billion. This massive contract reserve provides a foundation for Oracle's bold predictions of future revenue growth.

Cloud business revenue expected to achieve exponential growth

Supported by the large RPO, Oracle has provided a financial forecast for its cloud business that can be described as exponential growth, which has become another key fuel driving the stock price.

The company expects its cloud infrastructure (OCI) business revenue to grow by 77% this fiscal year, reaching $18 billion. More notably, the plan for the next four years forecasts OCI revenue to rise to $32 billion, $73 billion, $114 billion, and ultimately reach $144 billion in the fifth year. This means that the business will expand at a rate close to doubling each year over the next few years.

Oracle added that most of the revenue in this five-year forecast is already included in the current report's RPO.

High Capital Expenditure Releases Positive Signals

Behind Oracle's aggressive expansion is a massive plan to meet the computing power demands of AI giants. To fulfill these huge contracts, the company is preparing for large-scale capital investments.

Catz stated during the earnings call that the company's capital expenditure for this fiscal year is expected to reach $35 billion. She emphasized that most of these investments will be used for "revenue-generating equipment" in data centers, rather than land or buildings.

She added that if future capital expenditure numbers continue to rise, it would be "good news because it means more capacity," as the company needs capacity to convert the large RPO backlog into accelerated revenue and profits.

Before the earnings report was released, Cantor Fitzgerald analyst Thomas Blakey pointed out that investors should focus on Oracle's capital expenditure plans to assess its ability to meet new contract demands. He believes that the strong momentum of the OCI business driven by AI demand "should offset any short-term risks that may arise in capital expenditure, capital structure, and capital return strategies."