Oracle sees boost in net profit from asset sale as cloud business continues to gain momentum

Exceptional Net Profit Driven by a Divestment Transaction

In the second quarter of its fiscal year 2026, ending in late November, Oracle Corporation reported a revenue of $16.1 billion, marking a 14% increase at constant currency rates. The net income reached $6.1 billion, translating to a diluted earnings per share of $2.10. This performance includes a pre-tax gain of $2.7 billion from the sale of a stake in Ampere, a non-recurring transaction that boosts the quarter's net income. Excluding this effect, the basic earnings per share is $2.14. The operating margin for the quarter was 29%, while the net margin hit 38%, with the latter ratio being mechanically amplified by the proceeds from the sale. The effective tax rate was an unusually low 3.3%, reflecting the tax treatment of this transaction.

Cloud Computing is the Main Driver of Revenue Growth

The cloud segment now accounts for $8 billion in quarterly revenue, marking a 34% increase year-over-year. This growth is supported by two pillars: cloud infrastructure (IaaS), generating $4.1 billion, and cloud applications (SaaS), which contribute $3.9 billion. In contrast, the traditional software segment (licenses and support) reports $5.9 billion in revenue, slightly declining due to the rising dominance of the cloud. Hardware activities, which are structurally marginal, contribute $776 million, while associated services bring in $1.4 billion. Geographically, the Americas remain predominantly strong with $10.5 billion in revenue, followed by Europe, the Middle East, and Africa at $3.8 billion, and the Asia-Pacific region at $1.8 billion. The company notes that more than half of Oracle Multicloud's 72 data centers are currently under construction, highlighting the significant ongoing infrastructure effort.

An Expanding Order Book Driven by Major AI Contracts

Oracle announced that its remaining performance obligations (RPO), an indicator of the order backlog to be fulfilled, increased by $68 billion during the quarter to reach $523 billion, marking a 438% year-over-year increase. This surge in the order backlog is largely attributed to new commitments from major clients such as Meta and NVIDIA, which have signed extensive cloud infrastructure contracts for their artificial intelligence needs. Management highlights Oracle's multicloud integration within Amazon, Google, and Microsoft environments, along with the incorporation of AI capabilities across three software layers: data center infrastructure, autonomous databases, and business applications. The company also notes significant demand for AI model training and the sale of customized models, signaling a diversification of revenue streams in this area.

Cash Flow Under Strain Amid Massive Investments

On the cash flow front, Oracle generated $10.2 billion in operating cash flows during the quarter. However, investments took a significant toll: capital expenditures (capex) amounted to $20.5 billion, double the operating cash flow, resulting in a negative investment flow of $16.4 billion. To fund this expansion, the company turned to the bond markets, raising $17.9 billion in debt, leading to a positive financing flow of $14.7 billion. As of November 30, Oracle had $19.2 billion in cash and equivalents, with stockholders' equity of $30.5 billion and total assets of $205 billion. Quarterly interest expenses stand at $1.1 billion, a result of increased financial leverage. Additionally, the company executed marginal share buybacks valued at $95 million and declared a quarterly dividend of $0.50 per share.

Key Considerations and Structural Indicators for the Future

The fiscal second quarter 2026 results highlight several key indicators. On the positive side, the growth of cloud revenue, substantial increase in order backlogs, and the signing of major contracts demonstrate a strong offensive trajectory in the AI and multicloud market. The group also announced its commitment to a policy of chip neutrality, indicating a pursuit of technological openness. However, several financial constraints have emerged. Capital expenditures significantly exceed the generation of operating cash flow, forcing Oracle to resort to borrowing to finance its expansion. The high level of capex, combined with the simultaneous construction of dozens of data centers, raises questions about the future profitability of these infrastructures. Additionally, the group has identified risks associated with integrating new AI technologies, procuring GPUs and CPUs, managing complex data centers, and navigating economic, geopolitical, and regulatory uncertainties. The recent stock price volatility, particularly the December drop due to concerns over financing mega infrastructure projects, illustrates investor sensitivity to these issues. Ultimately, the sustainability of the model hinges on Oracle’s ability to convert its contractual commitments into recurring revenue while managing infrastructure costs and maintaining its financial structure in light of increased leverage.