Market Uncertainty and Oracle’s AI Ambition
This article explores the fear gripping US equities this past week and takes a closer look at Oracle’s latest earnings and AI expansion
It has been another eventful week in equities, starting with a big push lower driven by continued pessimism in the US and Trump’s tariff drama. The fear is still evident, and I don’t think the selloff is over as even after “good news”, all three major indices closed in the red. The main data point this week was CPI, which was a pretty good one relative to the prints that have been coming out recently. February inflation slowed with MoM CPI at 0.2%. This is the lowest figure since October 2024, just after the Fed started its rate-cutting cycle. The yearly figure sits at 2.8%, still above the Fed’s 2% target. Normally, this kind of downside surprise would be a tailwind for equities as cooling inflation strengthens the case for more rate cuts, reducing borrowing costs and supporting business growth. But here’s the issue. Despite an initial push higher, the market failed to hold gains and all three major indices closed in the red. This tells me that sentiment is still weak, although buyers did step back in to end the week. The rates and equities relationship is more nuanced than just lower rates leading to higher stocks, but I won’t go into that. The bigger takeaway here is that in a shaky market, having conviction in your portfolio is key. A solid hedging strategy matters just as much and I covered this in my previous post. Maybe today’s name is worth keeping an eye on as it is trading at a deep discount.
With AI vanishing from headlines thanks to Trump, I haven’t seen much coverage of Oracle’s latest earnings report. Given that Oracle has quietly positioned itself as a key infrastructure provider for AI workloads, striking deals with Nvidia, Microsoft, and OpenAI while growing its cloud backlog at an impressive rate, in my opinion, it is an important name to pay attention to.
Introduction
There was a time when Oracle was the backbone of the internet. During the dot com bubble, its databases powered the rise of Silicon Valley, and Larry Ellison became one of tech’s most influential figures. But as the world shifted towards cloud computing, Oracle was slow to adapt, ceding ground to Amazon, Microsoft, and Google. For years, it was dismissed as an old-school enterprise software company clinging to its legacy contracts. Now, Oracle is pushing hard to change that perception.
The company has aggressively expanded into cloud infrastructure, AI, and SaaS, positioning itself as a serious player in the modern enterprise IT landscape. Its recent earnings report showed both progress and the challenges ahead. Oracle has momentum, but the market remains skeptical.
As a key infrastructure provider during the dot-com era, Oracle thrived on the rapid expansion of internet businesses. However, when the majority of these companies went bankrupt, demand for Oracle’s services collapsed, leading to a significant decline in its business. This period of turbulence forced Oracle to rethink its strategy, setting the stage for its transition from a legacy software provider to a modern cloud and AI-driven enterprise.
The Business
Oracle’s core business has always been databases. For decades, companies relied on Oracle’s technology to store and manage mission-critical data. That business remains essential, but growth has shifted to cloud-based solutions. Oracle’s Autonomous Database is a direct response to this shift, designed to automate administration, improve security, and scale dynamically. This is Oracle’s attempt to modernise its most valuable product.
Beyond databases, Oracle has built a meaningful presence in cloud computing. Oracle Cloud Infrastructure competes with Amazon Web Services, Microsoft Azure, and Google Cloud despite also partnering with them on occasion. Oracle Cloud Infrastructure differentiates itself with a focus on enterprise workloads, high-performance computing, and AI infrastructure. Oracle has also got a SaaS segment to it, with Fusion and NetSuite offering cloud-based enterprise resource planning, CRM and human capital management software. Now, Oracle is making a significant AI push, investing heavily and partnering with Nvidia, Microsoft, and OpenAI. As AI workloads scale rapidly, Oracle wants to be the foundation on which these systems run.
Earnings Breakdown
Oracle’s latest earnings report was a mixed bag. Revenue came in at $14.13bn for Q3 FY25, up 6.4% YoY, but slightly below analyst expectations of $14.38bn. The company’s largest business segment, Cloud Services & License Support, generated $11bn, a 12% YoY increase. While this remains a key driver of Oracle’s revenue, growth is not yet accelerating at the pace seen in competitors like Microsoft Azure or AWS.
Infrastructure Cloud Services & License Support revenue came in at $6.17bn, up 11% YoY. This is a strong growth rate, but it still lags behind hyperscalers like AWS and Azure. I keep making the comparison but I want to highlight the relative value here as the figure alone doesn’t mean much. On a brighter note, Oracle has been aggressively signing major cloud deals, which has helped push remaining performance obligations (RPO) up 62% to $130bn, signaling strong demand for future cloud services. RPO is a forward-looking metric which measures the total value of contracted revenue yet to be recognised, providing visibility into future growth.
On the profitability side, Oracle’s operating margin was ~31%, slightly higher than the 29% seen in Q3 FY24, but nothing major. Net income came in at $2.9bn, a 21% YoY increase, benefiting from higher cloud revenue and cost efficiencies. Gross profit margin remained relatively flat at 70.3% despite AI-driven investments in data centers and high-performance computing hardware increasing costs. I find it pretty impressive that, despite its large capex, margins have remained relatively stable. Whereas other companies that are spending heavily are seeing margin compressions, I think the robustness of Oracle’s business is quite evident here.
The concern for investors is whether Oracle can convert its cloud backlog (RPOs) into sustained, high-margin growth. The company’s capex surged YoY to ~$12bn, reflecting its aggressive push to build out its AI infrastructure. Currently, margins haven’t been suppressed, but if revenue and earnings growth begins to decline whilst expenditure stays high, it will become worrisome. Despite these challenges, Oracle’s strong backlog, increasing cloud adoption, and strategic AI partnerships suggest it is nearing a full transition from a legacy software provider to a modern cloud leader. The question remains whether the market will reward the company for its long-term vision or if it will continue to demand faster results.
One of Oracle’s biggest bets is its role in Project Stargate. If you haven’t heard of this before, it’s a massive AI infrastructure initiative in the US that aims to invest up to $500bn in AI computing by 2029. Oracle is a key partner, providing the cloud infrastructure needed to run next-generation AI models. This is a high-stakes move for several reasons. Oracle is betting on AI infrastructure to compete with hyperscalers, committing massive resources to Project Stargate. If OpenAI, Nvidia, and others continue using its cloud, Oracle secures a dominant AI position. If not, it risks overbuilding.
The $500bn investment is unprecedented, and while AI demand is strong now, a slowdown could leave Oracle with costly excess capacity. Execution is another risk. Oracle has lagged in cloud before, and delivering AI at scale requires flawless infrastructure expansion. Ultimately, Oracle is tying its future to AI demand. One can make the argument that success reliant on AI demand applies to many other companies. My response to that would be that Google, Amazon, Meta, and Microsoft all have many more segments to their businesses and the scaling out in compute can be reallocated to other areas. Whereas Oracle is a business with less diversification, it runs the risk of reduced growth. Currently, I don’t think AI demand will be slowing any time soon, so I think Oracle is still very well positioned, but I feel more confident in the long-term growth of its competitors due to where they are positioned within the value chain and the flexibility they have.
Outlook
Oracle’s management remains confident about the company’s trajectory, emphasising continued acceleration in cloud and AI-driven growth. CEO Safra Catz reaffirmed that FY2026 revenue is expected to grow 15%, with FY2027 now projected at 20% growth, an increase from previous guidance. To support this, Oracle is doubling its data center capacity this year and tripling it by the end of next fiscal year, anticipating that new capacity will drive revenue acceleration. Management also expects cloud infrastructure revenue growth to exceed last year’s 50% increase, with AI demand continuing to outstrip supply. Component shortages that slowed cloud expansion are expected to ease in Q1 FY26, allowing Oracle to scale faster. Meanwhile, multi-cloud adoption is gaining momentum, with 40 additional cloud regions planned with Azure, AWS, and Google.
On Project Stargate, CTO Ellison hinted that the first major contract will be signed soon, which could further increase Oracle’s backlog. He reiterated that AI inferencing, leveraging Oracle’s database technology to integrate AI models into enterprise data, will become an even larger business than AI training over time. The difference between AI training and inferencing is that training involves building and refining AI models using massive computational resources, while inferencing is the process of applying those trained models to real-world tasks. The company expects RPO to continue growing significantly in the coming months as customers lock in long-term AI infrastructure contracts. While the market remains cautious, Oracle sees a clear path for faster revenue growth as capacity comes online and AI workloads scale further.
So overall, the future looks bright, and it’s not overvalued, trading at a P/E ratio of ~34x, it’s relatively cheap compared to its peers. As stocks have sold off, Oracle has shaved ~23% from it’s highs in December 2024, and I’m of the opinion that volatility is here to stay. Therefore, it’s important to focus on the underlying business and try to ignore the noise and intraday price movements of any positions held in a portfolio. I can see price retracing back to $130, which could give a bounce from there.
On another note, there is a rumour that Oracle may be the favoured suitor to buy/control the US arm of TikTok. I don’t like to dwell on rumours but sometimes “buy the rumour, sell the fact” trades work well. According to the report, ByteDance is hoping that Trump will approve a deal based on the framework of Project Texas, a multibillion-dollar agreement designed to address U.S. national security concerns. Under this arrangement, TikTok stores American user data on Oracle’s servers while granting Oracle oversight of its algorithm’s source code to ensure compliance and transparency.
Final Thoughts
Expect more volatility next week as the FOMC meeting on Wednesday will be closely watched. Although a rate cut isn’t expected, close attention will be paid to Jerome Powell’s language on the path ahead. NVIDIA GTC is also next week, and it will offer key insights into the AI industry as a whole. This could drive volatility depending on what is announced, especially if there are major developments in AI infrastructure, data center demand, or new GPU advancements. Given the recent pullback, I wouldn’t be surprised to see renewed optimism if NVIDIA delivers something big. Friday has been positive for NVIDIA which could be the beginning of a much needed relief rally.
A point that I want to make is that the media plays a huge part in making things seem worse than they really are. And believe it or not, it works. Many people with a lack of experience will certainly act upon a headline such as “Nasdaq closes below 200 day moving average, it’s all over”. Yes I made that headline up but I’m sure there is a similar one out there! The point that I’m trying to make here is to not be consumed by the news and headlines.
On the topic of headlines, as I mentioned at the beginning, there hasn’t been much coverage of AI/Quantum tech advancements and interesting things have been happening. My next post will be giving an overview/recap of the latest advancements and which companies are set to benefit the most from them!
I hope you found this article both engaging and informative. I always appreciate hearing your thoughts, so feel free to share any feedback or questions. If you know someone who might find this interesting, passing it along would mean a lot and helps grow the page. Thanks for reading, and keep an eye out for the next piece!
Disclaimer: This article is for informational purposes only and should not be considered financial or investment advice. The views expressed are my own and based on publicly available information, market trends, and personal analysis. I don’t own any Oracle shares, which may change at any time. Readers should conduct their own research and consult a financial professional before making any investment decisions.