Oracle’s Big Tech rivals akin to Amazon, Microsoft, and Google have helped reassure investors about their large capital investments by posting strong earnings from their vast cloud units.
But within the last quarter, Oracle’s cloud infrastructure business, which incorporates its data centers, posted worse than expected revenues of $4.1 billion. Ellison’s company can be relying more heavily on debt to fuel its expansion.
Net income rose to $6.1 billion within the quarter, boosted by a $2.7 billion pre-tax gain from the sale of semiconductor company Ampere to SoftBank.
The corporate added an extra 400 MW of information center capability within the quarter, Magouyrk told investors. Construction was on the right track at its large data center cluster in Abilene, Texas, which is being built for OpenAI, he added.
Magouyrk, who took over from Safra Catz in September, said there was ample demand from other clients for Oracle’s data centers if OpenAI didn’t take up the total amount it had contracted for.
“Now we have a customer base with plenty of demand such that every time we discover ourselves [with] capability that’s not getting used, it in a short time gets allocated,” he said.
Co-founded by Ellison as a business software provider, Oracle was slow to pivot to cloud computing. The billionaire stays chair and its largest shareholder.
Investors and analysts have raised concerns in recent months concerning the upfront spending required by Oracle to honor its AI infrastructure contracts. Moody’s in September flagged the corporate’s reliance on a small number of huge customers akin to OpenAI.
Morgan Stanley forecasts that Oracle’s net debt will soar to about $290 billion by 2028. The corporate sold $18 billion of bonds in September and is in talks to boost $38 billion in debt financing through various US banks.
Brent Thill, an analyst at Jefferies, said Oracle’s software business—which generated $5.9 billion within the quarter—provided some buffer amid accelerated spending. “However the timing mismatch between upfront capex and delayed monetization creates near-term pressure.”
Doug Kehring, principal financial officer, said the corporate was renting capability from data center specialists to scale back its direct borrowing.
The debt to construct the Abilene site was raised by start-up Crusoe and investment group Blue Owl Capital, and Oracle has signed a 15-year lease for the location.
“Oracle doesn’t pay for these leases until the finished data centers… are delivered to us,” Kehring said, adding that the corporate was “committed to maintaining our investment-grade debt rankings.”
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