Oracle Reports 22% Revenue Growth, But Faces Negative $24.7 Billion Cash Flow

Oracle reported its strongest third quarter for fiscal year 2026 in 15 years, with revenue increasing by 22% to $17.2 billion and cloud infrastructure growing by 84% to $4.9 billion. This positive performance led to a nearly 10% surge in the company’s stock in after-hours trading on Tuesday.

Despite the market’s enthusiasm, the enterprise software giant is experiencing a significant and increasing outflow of cash. Just three quarters ago, Oracle’s free cash flow was near zero, but this quarter it recorded a negative $24.7 billion over the past 12 months. This is attributed to a substantial rise in capital expenditures, which are projected to jump from $21.2 billion in fiscal year 2025 to $50 billion in the current fiscal year, driven by the company’s extensive AI data center development.

During a post-market close announcement, Chief Financial Officer Doug Kehring stated that Oracle would provide more details on its fiscal year 2027 capital expenditures in the following quarter.

“We will provide an update to everyone at the end of the fiscal year regarding next year’s capex,” Kehring commented when questioned. He also indicated that Oracle is exploring financing arrangements where future expenditures would not be directly funded by Oracle but rather by customers paying for capacity and services. Kehring highlighted, “The most compelling aspect to consider is the decoupling of CapEx from Oracle’s capital requirements.”

Oracle, with a market capitalization exceeding $400 billion, has faced scrutiny regarding its aggressive capital spending and growing debt. The company’s forecast of $50 billion in capital expenditures for the current fiscal year has contributed to its total debt exceeding $100 billion. Last month, Oracle successfully raised $30 billion through a combination of bonds and preferred stock, noting that the offering was significantly oversubscribed by investors.

For the time being, the company’s strategy appears to be yielding strong results.

On the revenue front, Oracle announced on Tuesday that its fiscal third quarter earnings per share increased by 21% to $1.79, surpassing Wall Street’s adjusted earnings per share expectations of approximately $1.71. These results immediately boosted the company’s stock price in after-hours trading, reversing the roughly 20% decline it had experienced year-to-date in 2026.

Oracle executives, including Executive Chairman and co-founder Larry Ellison, emphasized that the company’s enterprise software is not at risk of being superseded by customers developing their own AI-driven solutions. Ellison explained that Oracle is leveraging AI coding tools to create ecosystem automation platforms for sectors such as healthcare, financial services, and retail.

“This is our approach at Oracle,” Ellison stated. “It’s why we believe we are a disruptor. It’s why we think the term ‘Saaspocalpyse’ applies to others, but not to us.”

A Backlog Valued at Half a Trillion Dollars

Cloud infrastructure revenue, Oracle’s fastest-growing segment and a crucial component of its AI strategy, reached $4.9 billion, marking an 84% year-over-year increase. This figure aligns with market consensus and supports Ellison’s objective of competing with Amazon and Microsoft in the cloud market.

Total cloud revenue amounted to $8.9 billion, a 44% increase year-over-year. The revenue generated from its multi-cloud database services, which involves running Oracle’s database software within competitors’ cloud environments, saw a remarkable 531% growth. This strategy is central to Ellison’s plan to integrate Oracle into the ecosystems of Amazon’s AWS, Google Cloud, and Microsoft Azure, rather than compelling customers to migrate their data to Oracle’s infrastructure.

While specific figures for multi-cloud revenue were not disclosed, the company reported that its remaining performance obligations (RPO), representing its backlog of contracted future work, reached $553 billion. According to Magouyrk, this substantial figure indicates that demand is outstripping supply. He also noted that Oracle secured over $29 billion in new contracts since the previous quarter, utilizing a model where customers finance the capacity buildout themselves.

“By combining customer-provided hardware and upfront payments, we are able to continue expanding without experiencing negative cash flow,” stated co-CEO Clay Magouyrk. He added that Oracle delivered over 400 megawatts of capacity to customers in the third quarter, with 90% of it delivered on or ahead of schedule.

“It is unprecedented to scale capital into a business so rapidly while simultaneously improving profitability,” Magouyrk remarked during the conference call. “During this hyper-growth phase of our business, this is the sole factor impacting profitability.”

Melissa Otto, head of research at S&P Global Visible Alpha, indicated that Oracle’s debt-to-equity ratio falls between 3x and 4x, depending on the definition, which represents “significant leverage.”

“The investment community will be keen to understand their strategy for maintaining the company’s positive trajectory given this level of leverage,” Otto commented in an interview prior to the earnings release.

For the upcoming quarter, Oracle’s leadership anticipates revenue growth of 19% to 21%, with full-year revenue projected at $67 billion. The guidance for fiscal year 2027 has been revised upward to $90 billion.

“Companies experiencing high growth are often willing to accept short-term impacts” in pursuit of substantial long-term gains, Otto observed. However, she added that investors are seeking evidence that capital expenditures are translating into improved return on invested capital, margin expansion, and revenue growth.

“When I examine the balance sheets and cash positions of the hyperscalers in this sector, they are generally robust, with the exception of Oracle,” she concluded.