By Juby Babu and Stephen Nellis<\/p>\n
March 10 (Reuters) – Oracle on Tuesday predicted that the AI data center boom will power its revenue above Wall Street estimates well into 2027, sending its shares up 8.3% in extended trading.<\/p>\n
The results help to allay investor \u200cconcerns that Oracle’s costly multi-billion dollar push into AI computing would not generate profits quickly enough. Oracle has made a dramatic turn toward \u200cbuilding data centers for partners such as OpenAI<\/a> and Meta, while at the same time enacting layoffs as it uses smaller engineering teams and AI coding tools to roll out \u200bnew software for its longtime customer base of large businesses.<\/p>\n Remaining performance obligations (RPO), a key indicator of future contracted revenue, grew 325% from last year to $553 billion in the third quarter, ahead of the $540.37 billion estimate from four Visible Alpha analysts. Oracle had reported RPO of $523 billion in the previous quarter.<\/p>\n Most of the increase in RPO in the quarter is related to large-scale AI contracts where Oracle, which has borrowed heavily, “does not expect to have to raise any incremental funds,” \u200cthe company said in a statement.<\/p>\n The company also raised \u2060its revenue forecast for fiscal 2027 to $90 billion, above analysts’ estimates of $86.6 billion, according to LSEG-compiled data.<\/p>\n “Oracle’s quarter is a beat and a stress test result for the AI trade,” said eMarketer analyst Jacob Bourne. “As the most debt-exposed major \u2060player in AI infrastructure, Oracle is the canary in the coal mine and this report suggests there’s underlying health in AI spending beyond the hype.”<\/p>\n On a conference call with investors, Clay Magouyrk, one of Oracle’s two CEOs, said that the company’s margins on its cloud business should improve over time. He reiterated the company’s previous \u200bguidance, \u200bsaying that renting out AI chips from partners such as Nvidia<\/a> would have margins \u200bof 30% to 40%.<\/p>\n But he said that 10% to 20% \u200cof customer spending with Oracle’s cloud unit would go toward other services, which could also include its database business that has 60% to 80% gross margins.<\/p>\n “When you combine all of these pieces together, the overall margin profile of (Oracle Cloud Infrastructure) continues to strengthen and grows rapidly,” Magouyrk said.<\/p>\n