Oracle shares rise as AI cloud backlog tops estimates

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Oracle shares rise on AI backlog

Highlights

Oracle adds more than $30 billion in AI cloud contracts in Q1, raising its revenue backlog to $664 billion, surpassing the $639.89 billion estimate.
Shares rise 5.5% in premarket trading and Oracle is set to add about $24 billion in market value at a share price of $161.3.
Oracle trades at 16.86 times forward earnings, below Microsoft and Amazon, prompting investors to assess if AI cloud demand justifies ongoing infrastructure expansion.

Quarterly results ease spending concerns

As reported by Reuters, Oracle's stronger-than-expected quarterly results are helping calm investor concerns about the company's debt-funded expansion in AI infrastructure. The Austin, Texas-based company says it added more than $30 billion in AI cloud contracts in its first fiscal quarter, lifting its revenue backlog to $664 billion, above the $639.89 billion estimate compiled by Visible Alpha.

Oracle has been under pressure as it tries to keep pace with hyperscale rivals while absorbing mounting debt and tighter cash flows. Investors have been questioning how quickly the company's large data center build-out will translate into revenue, especially amid delays, and whether Oracle may need to raise additional capital.

J.P. Morgan analysts say the latest results should address key concerns around the sustainability of backlog growth, the conversion of that backlog into sales, and the need for further fundraising. Oracle shares rise 5.5% in premarket trading on Friday after the update.

Valuation and market impact

If the gains hold, Oracle is set to add about $24 billion in market value at a share price of $161.3. Even with the rebound, the stock is still down more than 21% so far this year, while the benchmark S&P 500 is up nearly 11%.

Lale Akoner, market strategist at eToro, says Oracle's challenge has not been customer demand but proving that its costly data center expansion can generate enough cash over time to justify the spending. She says the results should nevertheless reduce fears that Oracle is building capacity ahead of demand.

According to data compiled by LSEG, Oracle trades at 16.86 times forward earnings estimates, below Microsoft's 23.84 and Amazon's 22.58. That leaves investors weighing whether stronger AI cloud demand can support further upside while the company continues its aggressive infrastructure push.

Our earlier article covered Oracle’s accelerating cloud infrastructure momentum as AI customer demand lifted data center revenue and boosted its growth outlook. It also highlighted the rising financial pressure from surging capital expenditures, negative free cash flow, and a credit downgrade as Oracle ramps up spending to expand AI data center capacity.

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