This analysis highlights Oracle's strong emergence as a preferred investment option within the artificial intelligence (AI) domain, positioning it favorably against industry leader Nvidia. Oracle's substantial cloud backlog, driven by long-term contracts, provides a predictable and stable revenue stream, offering a stark contrast to Nvidia's more volatile hardware-centric business model. The company's expanding cloud infrastructure and successful multi-cloud strategy are key drivers of its sustained, high-margin growth, making it an attractive choice for investors seeking exposure to AI with reduced exposure to the inherent fluctuations of the semiconductor market.
On September 9th, Oracle's after-hours trading surged following the announcement of a significant increase in its cloud infrastructure bookings. This growth directly benefits from the ongoing expansion in artificial intelligence, providing a clear forecast of future earnings. Nvidia continues to be a prominent figure in AI infrastructure, consistently delivering impressive financial results. However, the operational models of these two technology giants diverge significantly. Oracle's expansion is increasingly anchored by multi-year service agreements that recognize revenue progressively over time. In contrast, Nvidia's earnings are tied to hardware shipments, which are subject to variations based on product cycles and customer purchasing behaviors. This fundamental difference suggests that Oracle may offer a more stable investment in the current climate.
A notable indicator of Oracle's robust performance is its remaining performance obligations (RPO), which represent revenue from signed contracts. This figure dramatically increased to $455 billion by August 31st, marking a 359% year-over-year rise. Management confirmed securing "four multibillion-dollar contracts with three distinct clients" within the quarter, anticipating RPO to surpass half a trillion dollars in the near future. Cloud revenue saw a 28% increase, with infrastructure-as-a-service (IaaS) revenue jumping by 55%. This exceptional growth is not an anomaly; the RPO stood at $138 billion just the previous quarter, indicating a substantial and sudden influx of large, multi-year agreements. This type of consistent demand is highly desirable for AI industry leaders, as it translates into predictable, long-term revenue streams, thereby smoothing out financial results compared to one-time hardware sales.
Oracle has also revised its projections for cloud infrastructure upwards. CEO Safra Catz presented a strategy to achieve a 77% increase in Oracle Cloud Infrastructure (OCI) revenue this fiscal year, reaching $18 billion. Subsequent plans project OCI revenue to grow to $32 billion, $73 billion, $114 billion, and $144 billion over the following four years, with a significant portion already secured through RPO. The company emphasized strong momentum in its multi-cloud strategy, reporting that "MultiCloud database revenue from Amazon, Google, and Microsoft soared by an astonishing 1,529% in Q1." Furthermore, 37 new data centers are planned for delivery to hyperscaler partners, bringing the total to 71. Oracle also announced an additional quarterly dividend of $0.50, reinforcing its confidence in its financial health and cash generation capabilities.
While Nvidia's recent financial outcomes remain exceptional, with a 56% year-over-year revenue increase to $46.7 billion and data-center revenue climbing 56% to $41.1 billion in the quarter ending July 27th, and a guided revenue of approximately $54 billion for the next quarter, a closer examination reveals underlying cyclical dynamics. Sequential compute revenue saw a 1% decrease due to a $4.0 billion reduction in H20 product sales and the absence of H20 sales to China in the quarter. Inventory levels rose to $15.0 billion to support future product launches, and purchase commitments reached $45.8 billion as Nvidia prepares for upcoming cycles. This illustrates the nature of a leading hardware company—powerful yet susceptible to product transitions, export regulations, and the purchasing patterns of hyperscalers. This fundamental difference underscores why Oracle, with its focus on contract-based growth and predictable revenue streams, presents a more resilient and transparent investment opportunity for those looking to capitalize on the AI revolution.
