Oracle Corporation
Analytical review · Quarter ended August 31, 2026 (Q1 of fiscal year 2027)
Bakshi Finance — Family Office | Research Depth: Comprehensive
What this review is based on. Oracle's quarterly report on Form 10-Q for the quarter ended August 31, 2026, filed September 11, 2026; the results release of September 10, 2026; the annual report on Form 10-K for the fiscal year ended May 31, 2026; the fiscal 2026 quarterly reports and results releases; and the September 2026 proxy statement. Market data: closing price on Oct 5, 2026 and the Bank of Israel representative USD rate for the same day. Oracle's fiscal year ends May 31, so "Q1 of fiscal 2027" is June–August 2026.
Company Profile
Oracle Corporation is one of the world's largest enterprise software companies. For decades it has relied on its database (Oracle Database), which runs core systems at banks, insurers, governments and industrial companies, and on the annual support contracts that come with it. The company is headquartered in Austin, Texas, and employed about 141,000 people at the end of May 2026.
The company operates in three areas today: cloud applications (SaaS) — ERP systems (Fusion, NetSuite), human resources and healthcare systems (Oracle Health, formerly Cerner); software — licenses and support for the database and for software installed at the customer; and cloud infrastructure (OCI) — data centers that rent out computing power, mainly graphics processors (GPUs) for training and running artificial-intelligence models.
Over the past two years the third area has become the main growth engine: cloud infrastructure revenue rose from $3.3 billion a quarter a year ago to $7.4 billion in the latest quarter. Founder Larry Ellison serves as Executive Chair and Chief Technology Officer and owns 38.2% of the shares. The company is run by two CEOs: Clay Magouyrk and Mike Sicilia.
Financial Performance
In the June–August 2026 quarter revenue rose 30% to $19.3 billion, above the guidance range the company published in June (27%–29%). Almost all of the increase came from cloud infrastructure: +$4.0 billion out of +$4.4 billion. Cloud applications grew 10%, and software declined 3%, mainly because license sales fell 15%.
Profit and cash flow — two different numbers
Operating income rose 57% to $6.7 billion (35% of revenue, versus 29%), and net income rose to $4.8 billion. The improvement in operating margin came mainly from lower sales and marketing (−12%), R&D (−4%), amortization of intangibles and restructuring. At the same time, cloud and software expenses rose 77%, and depreciation rose from $1.4 billion to $3.2 billion.
Operating cash flow reached $23.1 billion. According to the filing, $11.4 billion of it was customer prepayments that include a "significant financing component" — advance payments the company discounts at a rate consistent with its own borrowing rate. Capital expenditures were $28.5 billion, so free cash flow was negative: −$5.4 billion in the quarter and −$28.7 billion over the last 12 months.
The second quarter of fiscal 2026 included a one-time pre-tax gain of $2.7 billion from the sale of the company's stake in chipmaker Ampere. That gain is included in trailing-12-month net income.
| $ millions | Q1 FY26 | Q2 FY26 | Q3 FY26 | Q4 FY26 | Q1 FY27 |
|---|---|---|---|---|---|
| Revenue | 14,926 | 16,058 | 17,190 | 19,184 | 19,345 |
| of which cloud infrastructure (IaaS) | 3,347 | 4,079 | 4,888 | 5,787 | 7,388 |
| Operating income | 4,277 | 4,731 | 5,464 | 6,133 | 6,728 |
| Net income | 2,927 | 6,135 | 3,721 | 4,304 | 4,760 |
| Operating cash flow | 8,140 | 2,066 | 7,151 | 14,620 | 23,103 |
| of which prepayments with financing component | — | — | — | 4,592 | 11,363 |
| Capital expenditures | 8,502 | 12,033 | 18,635 | 16,493 | 28,499 |
| Free cash flow | −362 | −9,967 | −11,484 | −1,873 | −5,396 |
Balance Sheet & Capital
At August 31, 2026 total assets were $303.3 billion, versus $168.4 billion 15 months earlier. The increase comes mainly from property, plant and equipment: $127.8 billion net, of which $48.5 billion is construction in progress — servers and equipment not yet deployed and not yet being depreciated. Servers are depreciated over six years.
Debt and funding: financial debt stands at $125.3 billion, against cash and securities of $37.1 billion. In fiscal 2026 the company issued $43 billion of senior notes (maturities 2029–2066, coupons 4.45%–6.85%) and $5 billion of mandatory convertible preferred stock. In the latest quarter it completed a $20 billion at-the-market (ATM) equity program: 141 million new shares. According to the notes to the financial statements, the value of the senior notes based on trading prices at August 31, 2026 was $105.7 billion, against $125.0 billion of principal outstanding.
Off-balance-sheet commitments: the company has data-center lease commitments that have not yet commenced totaling $288 billion, for terms of 15 to 19 years, commencing between late 2026 and 2029. A year earlier the figure was $99.8 billion. There are also $34.2 billion of unconditional purchase obligations, mainly for cloud components and power ($13.3 billion at the end of May). In the annual report the company states that lease terms "typically do not align" with the duration and pricing of customer contracts.
Shares and dividend: shares outstanding rose from 2,807 million in May 2025 to 3,024 million in August 2026 (+7.7%). The preferred stock converts in January 2029 into 25 to 31 million additional shares. The company pays a dividend of $0.50 per share per quarter, about $6 billion a year.
| $ billions | May 31, 2025 | May 31, 2026 | Aug 31, 2026 |
|---|---|---|---|
| PP&E, net | 43.5 | 100.0 | 127.8 |
| Cash and securities | 11.2 | 31.9 | 37.1 |
| Financial debt | 92.6 | 129.5 | 125.3 |
| On-balance-sheet lease liabilities (operating + finance) | — | 37.9 | 43.8 |
| Deferred revenue (current + non-current) | 9.4* | 15.4 | 30.8 |
| Stockholders' equity | 21.0 | 43.1 | 67.2 |
* At May 31, 2025: current deferred revenue only. Source: fiscal 2026 10-K, Q1 fiscal 2027 10-Q.
Segments
Oracle reports three segments: cloud and software, hardware, and services. Cloud infrastructure is not a separate segment — it is part of "cloud and software", so the company does not publish its profitability on its own.
| $ millions, Q1 | Revenue 2025 | Revenue 2026 | Segment margin 2025 | Segment margin 2026 |
|---|---|---|---|---|
| Cloud and software | 12,907 | 17,157 | 7,691 (59.6%) | 9,358 (54.5%) |
| Hardware | 670 | 774 | 447 (66.7%) | 452 (58.4%) |
| Services | 1,349 | 1,414 | 332 (24.6%) | 445 (31.5%) |
In the cloud and software segment, revenue rose by $4,250 million and segment margin by $1,667 million — about 39 cents of margin on each additional dollar of revenue, versus an average of about 60 cents in the prior-year quarter. The filing notes that segment margin tends to rise over the course of the fiscal year, so the right comparison is to the same quarter of the prior year.
Geographic breakdown
Americas: $13.7 billion (+42%, 71% of revenue, versus 65%). Europe, Middle East and Africa: $3.7 billion (+7%). Asia-Pacific: $1.9 billion (+7%). Cloud infrastructure growth is concentrated in the Americas.
Competitive Position
Database and applications: software support revenue was $19.8 billion in fiscal 2026, almost unchanged (−1%). This is an enterprise customer base that rarely replaces its database. Oracle also offers its database inside the Amazon, Microsoft and Google clouds (Multicloud), so a customer can stay with Oracle without moving to Oracle's own cloud. Cloud applications reached $15.9 billion a year (+11%).
Cloud infrastructure: Oracle competes with the three large cloud providers and with providers specialized in AI computing. According to the results release, 850 megawatts of capacity were added in the quarter, and more than 300,000 GPUs have been delivered to customers since the end of Q4. In November 2025 the company sold Ampere and announced a "chip neutrality" policy — working with all processor suppliers.
What the filings show on the other side: in the annual report the company states that in certain cloud infrastructure offerings it is "more concentrated among a number of large customers", and that "some of our customers may be highly leveraged". The company does not publish names or percentages. According to the annual report, no single customer accounted for 10% or more of revenue in 2024–2026, but RPO is not broken down by customer. This review does not include peer comparison data from primary sources.
How to Think About This Company
Oracle is now two companies in one report. The first is a mature software business: support, licenses and applications, with more than $35 billion a year of recurring revenue. The second is an infrastructure project that invests more in a quarter than the whole company takes in. Almost all of the growth comes from the second, and almost all of the investment goes into it. Reading the filings requires separating them.
RPO is a contract, not cash. $664 billion of performance obligations is about nine times trailing-12-month revenue. 13% is scheduled for recognition in the coming year, 37% in the two years after that, and 34% in years 4–5. Each such dollar becomes revenue only if the data center is built, connected to power and delivered on time, and if the customer honors the contract.
Two cash flows in one line. The quarter's operating cash flow ($23.1 billion) includes $11.4 billion of prepayments that the filing classifies as having a "significant financing component" and that are discounted at the company's borrowing rate. Without the prepayments, operating cash flow was $11.7 billion — still above $8.1 billion a year earlier. Both readings are true: the business generates more cash, and part of the cash coming in is financing from customers.
The gap between contract length and lease length. According to the quarterly report, 84% of RPO is scheduled for recognition within five years. The data-center leases run 15 to 19 years, and servers are depreciated over six years. If contracts are renewed or the capacity is re-leased, the gap is not a problem. If not, the fixed cost stays with Oracle.
The profitability of the new engine is not published. Oracle does not report cloud infrastructure as a separate segment. The closest figure is the "cloud and software" segment margin, which fell from 59.6% to 54.5% in a year. Depreciation reached 16.3% of revenue (9.1% a year earlier), and another $48.5 billion of equipment under construction will begin to be depreciated once deployed. When the leases not yet commenced take effect, further fixed cost will be added.
Funding is part of the product. In fiscal 2026 the company raised $48 billion in notes and preferred stock; in the latest quarter another $20 billion in common stock. In June management announced a plan to raise about $40 billion in fiscal 2027, including the equity issuance already completed. When free cash flow is negative, the dividend and the investment are in practice funded by capital raising. Access to capital markets is therefore an operating variable, not only a financial one.
The legacy business keeps funding. Software support revenue (about $4.9 billion a quarter) barely moves, and cloud applications grow about 10% a year. This is the base that lets the company carry the investment. The decline in license sales (−15%) and the shift of customers from on-premise software to the cloud are a process the company describes as part of its strategy.
Reported versus normalized. The last 12 months include a $2.7 billion pre-tax gain from the Ampere sale and, according to management, a gain on Bloom Energy warrants. On the other side they include $1.5 billion of restructuring and other expenses. Anyone comparing earnings across periods has to decide which of these items to normalize, and do so consistently in both directions.
Control structure. Larry Ellison owns 38.2% of the shares, and according to the proxy statement 413 million of them are pledged to secure personal lines of credit. On September 12, 2026 Ellison cancelled a planned sale plan and stated that he has no other plans to sell. The board's governance committee reviews the pledge every quarter.
The framework is meant to organize the questions. It does not decide and does not take part in the decision — the decision belongs to the reader.
This framework is intended to structure analysis, not to produce an investment conclusion.
Risks & Monitoring
Risks that emerge from the filings
- Counterparty and concentration: the company notes concentration among a number of large customers in certain infrastructure offerings, and that some customers "may be highly leveraged". According to the annual report, the return on these investments depends on the ability of "key customers" to meet their obligations, and a change could require an evaluation of the recoverability of the related assets.
- Long-dated commitments: $288 billion of leases not yet commenced and $34.2 billion of purchase obligations, against shorter customer contracts.
- Funding: $125.3 billion of debt, negative free cash flow, and reliance on access to the bond and equity markets. The annual report notes that a change in credit rating could affect both the debt and the stock.
- Dilution: +7.7% in shares outstanding over 15 months, and the preferred conversion in January 2029.
- Execution: power, permits, supply of processors and memory components, and third-party contractors. The company notes that power constraints may limit growth.
- Legal: a shareholder class action (Delaware, February 2026, amended in July) alleging misleading statements about the cloud infrastructure business. The company believes it will not have a material impact.
Items to monitor in the Q2 report (December 2026)
| # | Item | Latest reading |
|---|---|---|
| 1 | Revenue and cloud vs. guidance range | Guidance: revenue +30%–34%, cloud +65%–71% |
| 2 | Cloud and software segment margin | 54.5% (59.6% a year earlier) |
| 3 | Operating cash flow, prepayments and capex | $23.1 / $11.4 / $28.5 billion |
| 4 | Leases not yet commenced and purchase obligations | $288 / $34.2 billion |
| 5 | RPO and share scheduled for the next 12 months | $664 billion · 13% |
| 6 | Depreciation as % of revenue | 16.3% |
| 7 | Shares outstanding | 3,024 million |
| 8 | Value of notes based on trading prices, as reported | $105.7 vs $125.0 billion |
Scenario Framework
The scenarios below are descriptive, not predictive. They include no prices, no probabilities and no ranking of outcomes. Their only purpose is to organize the conditions that would need to hold for each state to materialize, so they can be checked against future reports.
Scenarios are descriptive, not predictive.
- If the cloud and software segment margin stops declining versus the prior-year quarter while infrastructure revenue keeps growing
- If operating cash flow excluding prepayments grows faster than capital expenditures
- If RPO recognition proceeds in line with the schedule in the filing, without material contract changes
- If the company publishes more information on cloud infrastructure profitability or customer distribution
- If revenue keeps growing at a pace similar to the guidance range while free cash flow stays negative
- If funding keeps coming from a mix of notes, equity and customer prepayments
- If segment margin moves within the range of recent quarters and depreciation keeps rising as a share of revenue
- If off-balance-sheet commitments stay around their current size
- If a large customer fails to honor its contract, or contracts are deferred or reduced
- If access to the bond or equity markets becomes more expensive while capital expenditures continue
- If leases commence before the corresponding revenue is recognized
- If the cloud and software segment margin keeps falling even as revenue growth continues
Analytical Lens
The following six questions are identical in every company review we publish. They are deliberately open and do not lead to a single conclusion. Their role is to let the reader examine the company along the same six dimensions used for every other company.
Key Observations
1. In the June–August 2026 quarter Oracle reported revenue of $19.3 billion (+30%), of which $7.4 billion was cloud infrastructure (+121%). Operating income rose 57% to $6.7 billion. For fiscal 2027 as a whole, according to management, revenue will be at least $90 billion.
2. RPO stood at $664 billion, versus $455 billion a year earlier. According to the filing, 13% of it is scheduled for recognition in the next 12 months and 84% within five years.
3. Capital expenditures in the quarter reached $28.5 billion, and free cash flow was −$5.4 billion. Operating cash flow ($23.1 billion) included $11.4 billion of customer prepayments with a significant financing component.
4. Financial debt stood at $125.3 billion and cash at $37.1 billion. Off the balance sheet there are $288 billion of leases not yet commenced. In the quarter the company issued 141 million shares totaling $20 billion.
Bakshi Finance operates as a Family Office serving qualified clients only. Mr. Yaron Bakshi held an investment advisory license from 2008 to 2023. As of the date of this document, the company does not hold an investment advisory, investment marketing or portfolio management license.
This document is intended for research and professional learning purposes only. Nothing herein constitutes a recommendation to buy, sell, hold or take any action in securities. Nothing herein substitutes for advice that takes into account the data and needs of any individual. Any decision is the investor's sole responsibility.
Past performance does not indicate future results. Data was drawn from official sources: the Form 10-Q for the quarter ended August 31, 2026 (filed September 11, 2026), the results release of September 10, 2026, the Form 10-K for the fiscal year ended May 31, 2026 (filed June 22, 2026), the fiscal 2026 quarterly reports and results releases, and the proxy statement of September 25, 2026. Reporting updates published after this date are not included.
Review for Qualified Clients โ Family Office
The full analytical review of Oracle (ORCL) for the quarter ended August 2026 is available to Bakshi Finance premium clients.
The review includes a 10-section analysis, "How to Think About This Company", a structured Scenario Framework and a 6-dimension Analytical Lens.
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