Oracle reports AMC and it will be an important marker for data points and readthroughs for the AI trade. The results will be an important update and backdrop for the fundamentals around AI demand for data center compute, database demand and additionally a likely discussion around the current regulatory environment as it pertains to building data centers. The key read through areas to focus on will be – AI financing environment, data center regulatory environment, scale and breadth of AI compute demand growth outlook and capex inflation trends.
This is not a call on the earnings results specifically but if I had to pick a side, the fundamentals for compute and database have been decidedly positive and should carry through to the backlog and outlook for ORCL. I believe OpenAI counterparty concerns are, at the moment, on the sidelines after reasonably positive commentary from their CFO and a market excited about their new Astra model and the company’s goals to reach IG.
Critically – if ORCL can confirm a stable funding profile, strong backlog growth and show the tailwinds of what we see as higher prices for AI compute coming through on new contracts as evidenced by NBIS and CRWV earnings, this could be a strong quarter. The flip side and where there remains concern in the market would be around capex and funding plans and potential delays for bringing on new compute as well as depth of gross margin pressure from new infrastructure projects.
Database and data for AI remain an incredibly positive demand trend as evidenced by results and commentary from SNOW, PLTR and DELL recently. ORCL similarly has been very positive on emerging importance of data in the AI era and as per their last call, this will likely continue to be an emerging positive fundamental theme. CEO Mike Sicilia on their last quarter call “… in addition to discussions around AI in our applications, I’m also having very interesting conversations with our customers around leveraging their own proprietary data sets with AI. Much of this data already sits in an Oracle database or is generated by Oracle applications. For many enterprises, inferencing against decades of rich operations data is where the benefits of AI compound exponentially. Oracle’s full-stack offerings allow customers to get up and running quickly, leveraging AI together with their private data sets.”
Backlog and AI data center demand. RPO build will be a critical focus as the market looks to seeing signs of further demand growth and reduce focus on Open AI. Critically for the space, seeing a re-acceleration and broadening of demand will be another validation of the positive demand fundamentals for AI compute.
Data center buildout and regulatory challenges are going to be a focus. The recent news about a pipeline delay for their New Mexico Stargate project will be a focus as will their general tone and view on the political and regulatory environment for data centers currently.
Margins are company specific, but ORCL has already guided those to be lower in FY27 due to bringing online infrastructure projects and the degree and length of this decline will also be analyzed in the context of both company data center operations as well as potential indicative industry trends.
