Oracle shares jumped 5.5% in premarket trading on Friday after the software and cloud computing company reported stronger-than-expected quarterly results. The figures helped ease investor concerns about the company’s heavy spending on artificial intelligence infrastructure.
Oracle added more than $30 billion in new AI cloud contracts during its first fiscal quarter. As a result, its total revenue backlog climbed to $664 billion. That figure was above the analyst estimate of $639.89 billion, according to Visible Alpha data.
Oracle’s AI Spending Comes Under Scrutiny
The latest results come after a difficult period for Oracle. The company has been racing to expand its cloud infrastructure and compete with much larger technology rivals.
However, that expansion has required significant borrowing and capital spending. Consequently, investors have questioned whether Oracle can generate enough cash from its AI investments to justify the cost.
The company’s growing backlog could help address some of those concerns. Still, investors are watching closely to see how quickly Oracle can turn those contracts into actual revenue.
J.P. Morgan analysts said the results addressed several important questions. These include whether backlog growth can continue, how contracts will convert into revenue, and whether delays at data centers could slow that process.
Oracle Stock Has Lagged the Market
Oracle shares had fallen more than 21% so far this year before Friday’s premarket gains. By comparison, the S&P 500 had gained almost 11% during the same period.
Therefore, the latest rally represents an important boost for the company. If the gains continue, Oracle could add roughly $24 billion to its market value based on a share price of $161.30.
Market strategist Lale Akoner of eToro said Oracle’s main challenge has not been attracting customers. Instead, the company needs to demonstrate that its huge data center investment can eventually produce enough cash to support the spending.
Akoner added that the latest results should reduce concerns that Oracle is expanding its infrastructure faster than customer demand requires.
Valuation Remains Below Some Rivals
Oracle also trades at a lower forward earnings multiple than several major technology competitors. Its shares were trading at around 16.86 times expected earnings.
By comparison, Microsoft traded at about 23.84 times forward earnings, while Amazon stood at 22.58 times, according to LSEG data.
Meanwhile, Oracle’s strong AI cloud contract growth gives investors a clearer view of potential future revenue. However, the company still faces challenges around infrastructure costs, debt and cash flow.
For now, the latest results have given Oracle investors a reason for renewed optimism. The focus will now shift to whether the company can convert its enormous backlog into revenue and, ultimately, stronger cash generation.
