Oracle Corporation reported a 30 percent increase in revenue for its fiscal first quarter, driven by a 121 percent surge in cloud infrastructure sales. The company, which rents computing power to artificial intelligence firms, also announced that its remaining performance obligations reached $664 billion. This backlog, representing the value of signed but undelivered contracts, is more than seven times the revenue Oracle expects to generate this year.
Following these results, Oracle raised its full-year revenue outlook to at least $90 billion. Hilary Maxson, the company's chief financial officer, described the quarter as one of "acceleration." The massive backlog is central to this growth story, with Oracle stating that roughly half of it should convert into revenue within three years. This projected conversion is more than three times the amount the company expects to collect in the current fiscal year.
The demand for such infrastructure is part of a broader trend. Gartner expects worldwide artificial intelligence spending to reach $2.59 trillion in 2026, with more than half of that total allocated to infrastructure. Oracle has positioned itself as a key supplier of this capacity. Newer contracts also improve the company's financial structure. Oracle signed over $30 billion in new AI cloud deals during the quarter, and management noted that most were structured as prepayments or involved customers providing their own hardware. This approach limits the amount of Oracle's own capital required to serve these clients.
Despite the favorable contract structures, the physical build-out remains a significant financial burden. Oracle spent $28.5 billion on data centers and equipment in a single quarter, an amount exceeding the cash generated by its business operations. Consequently, free cash flow remained negative, a trend that persisted throughout the previous year. Gross margins fell by more than five points in one quarter to reach 61 percent. One day after releasing these results, Oracle expanded its job-cut plan, indicating the strain the infrastructure build-out places on cash reserves.
A major concentration risk lies in the company's largest customer. OpenAI signed a $300 billion contract with Oracle last year, which begins in 2027 and accounts for nearly half of Oracle's current backlog. Because OpenAI is currently unprofitable, Oracle is borrowing to build capacity today against a payment stream that has not yet begun. The ability of OpenAI to meet these payments over a five-year period is not guaranteed.
Broader market risks also loom over these projections. If artificial intelligence investment slows or major technology companies reduce spending, the demand for which Oracle is building capacity could shrink before its data centers are completed. While the contracted demand provides visibility for several years of revenue growth, the costs of delivery and reliance on a single large client remain key concerns.
Oracle management has scheduled an investor day in October to provide a detailed plan regarding margins and cash flow. Investors will look to this event for answers before the next quarterly report in December. In the Insider Monkey database, 119 hedge funds held Oracle shares worth approximately $7 billion at the end of the second quarter of 2026. This represents an increase from 115 holders with a cumulative investment value of just over $5.5 billion in the prior quarter.