Oracle Bets on AI Data Center Boom to Drive Strong Revenue Growth Through 2027
Oracle expects the ongoing boom in artificial intelligence data centers to significantly boost its revenue in the coming years, with the company forecasting results that could exceed Wall Street expectations through 2027. The announcement pushed Oracle’s shares up 8.3% in extended trading on Tuesday.
The outlook helped ease investor concerns that Oracle’s multi-billion-dollar investment in AI infrastructure might take too long to generate meaningful returns. In recent years, Oracle has shifted aggressively toward building large-scale data centers to support partners such as OpenAI and Meta. At the same time, the company has streamlined its workforce by reducing staff while relying on smaller engineering teams and AI coding tools to accelerate software development for its enterprise customers.
Oracle’s Future Revenue Pipeline Surges as AI Contracts Expand
A key indicator of Oracle’s future growth, remaining performance obligations (RPO), surged 325% year-over-year to reach $553 billion in the third quarter. This figure exceeded analyst estimates of $540.37 billion and increased from $523 billion reported in the previous quarter.
According to Oracle, most of the growth in RPO was driven by large AI infrastructure contracts. Despite significant borrowing to support its expansion, the company stated that it does not currently expect to raise additional funding to support these projects.
Oracle also raised its revenue outlook for fiscal year 2027 to $90 billion, surpassing analyst expectations of $86.6 billion based on data compiled by LSEG.
Industry analysts say Oracle’s results provide an important signal about the strength of AI infrastructure demand. Jacob Bourne, an analyst at eMarketer, noted that Oracle is one of the most debt-exposed companies investing in AI infrastructure, making its performance a key indicator of the broader market.
Oracle Cloud Margins Expected to Improve Over Time
During a conference call with investors, Oracle CEO Clay Magouyrk stated that profit margins within the company’s cloud division are expected to improve as the business continues to scale.
Magouyrk reiterated previous guidance that renting out AI chips from partners such as Nvidia could generate margins between 30% and 40%. Additionally, around 10% to 20% of customer spending on Oracle Cloud services will likely go toward other offerings, including the company’s database products, which typically deliver much higher gross margins of 60% to 80%.
He added that when all services are combined, Oracle Cloud Infrastructure’s overall profitability is expected to strengthen significantly while continuing to grow at a rapid pace.
Oracle Expands Data Centers to Compete in the AI Cloud Race
Oracle’s strategy of rapidly expanding its data center footprint is designed to capture a larger share of the rapidly growing artificial intelligence market. The company has been investing heavily in cloud infrastructure capable of supporting generative AI workloads.
This approach puts Oracle in direct competition with major cloud providers such as Amazon Web Services (AWS) and Microsoft Azure, both of which dominate the global cloud computing market.
Larry Ellison: AI Coding Tools Could Strengthen Oracle’s Software Business
Oracle co-founder and executive chairman Larry Ellison also addressed concerns that AI coding tools could reduce demand for traditional enterprise software. According to Ellison, Oracle is embracing these technologies rather than being threatened by them.
He explained that advanced coding tools now allow small engineering teams to develop complex software solutions more efficiently. These tools are enabling Oracle to build new software-as-a-service (SaaS) products designed to automate entire industries, including healthcare and financial services.
Ellison argued that while some companies may face a “SaaS apocalypse” due to AI automation, Oracle expects to benefit from adopting these technologies early.
Oracle Beats Revenue Estimates and Raises Profit Outlook
For the third quarter ending February 28, Oracle reported total revenue of $17.19 billion. This exceeded the average analyst estimate of $16.91 billion, according to LSEG data.
Looking ahead to the fourth quarter, Oracle expects adjusted earnings to range between $1.96 and $2.00 per share, slightly above analyst forecasts of $1.94 per share.
The company also projected fourth-quarter revenue growth between 19% and 21%, which aligns closely with analyst expectations of around 20.2% growth to approximately $19.12 billion.
Cloud revenue is expected to grow even faster, with Oracle forecasting an increase of 46% to 50%. Analysts had previously estimated cloud revenue growth of about 48%, reaching roughly $9.98 billion.
