Strive to control fees while increasing AI investment! Oracle (ORCL.US) restructuring costs increased by another $700 million in fiscal year 2026

The Zhitong Finance App learned that while Oracle (ORCL.US) is investing billions of dollars to seize the opportunities brought by the surge in demand for artificial intelligence (AI), the cloud computing giant is also seeking to control costs. The company said in a regulatory filing submitted on Friday that its costs would increase by about $700 million as part of a restructuring plan that includes layoffs.

Oracle said this increase was disclosed after the end of its fiscal quarter in August and will raise the estimated cost of the company's 2026 restructuring plan to about US$2.8 billion. According to the company, the plan includes severance pay, contract termination costs and other exit costs, some of which are related to introducing AI in some functional departments.

Notably, this layoff comes at a time when Oracle's stock price is going through a period of turbulence. Investors seem to be split into two groups: those who are confident about the company's AI-driven growth, while others are concerned about how it will fund this growth.

Oracle's results for the first quarter of fiscal year 2027 showed that revenue increased 30% year over year to US$19.35 billion, better than analysts' average expectations of US$19.13 billion. The company attributed revenue growth to trends such as strong cloud infrastructure business performance and increased data center capacity. Operating profit was $6.73 billion, up 57% year over year; net profit attributable to common shareholders was $4.68 billion, up 60% year over year; adjusted earnings per share was $1.92, better than analysts' average forecast of $1.75.

By business segment, revenue from the much-publicized cloud business increased 62% year over year to US$11.61 billion, a record high, better than analysts' average forecast of US$11.52 billion. Among them, cloud infrastructure business revenue increased 121% year over year to 7.4 billion US dollars, better than analysts' average forecast of 7.19 billion US dollars; cloud application revenue increased 10% year over year to 4.2 billion US dollars. Some analysts previously predicted that as the market demand for AI computing power continues to rise, the increasingly competitive pricing environment will benefit the Oracle Cloud business.

Customer demand for AI cloud training and inference services continues to grow, outpacing supply. Oracle added more than $30 billion in AI cloud contracts in the first quarter, increasing its remaining performance obligations (RPO) by 4% month-on-month to $664 billion, higher than analysts' average expectations of $618 billion. Based on the structure of these new contracts, the company confirmed that there would be no additional impact on its financing plans. Since the end of the fourth quarter of fiscal year 2026, the company has also delivered more than 300,000 GPUs to its AI cloud customers, almost three times the delivery capacity of the fourth quarter of fiscal year 2026.

Oracle said that about half of its $664 billion backlog of orders is expected to be converted into sales revenue within the next 36 months, and most of the revenue from new contracts will not require the company's own capital — the company relies on customer prepayments and customer-owned chips to expand production capacity.

Additionally, Oracle's free cash flow as of the end of the first quarter was negative $5.4 billion, better than the average analysts' expectations of negative $9.56 billion, as shown by LSEG's aggregated data. Oracle said that capital expenditure for the three months ending August 31 was US$28.5 billion, most of which was for data center equipment, a figure far higher than analysts' estimate of US$19.23 billion.

Barclays analyst Raimo Lenschow wrote in a report that although capital expenditure was higher than expected, the company's control of other expenses was good, and the negative level of free cash flow was not as serious as the market feared.

Evercore analysts also pointed out, “Oracle's current results are a solid step forward, making investors' discussions about the company more balanced — it is achieving accelerated revenue growth on a large scale. While the company's debt burden is indeed a legitimate concern, the positive elements in the business have been overlooked in this debate.”

This series of news allayed some of the market's concerns about its borrowing spending frenzy, and helped Oracle's stock to recover from the weak performance of the previous period. However, Oracle's stock price rose 7.8% on Friday, but then the stock price turned downward and closed down about 2%.

Some analysts said that it will take time to improve the current Oracle cash flow. Morning Star analyst Luke Yang said, “Although Oracle requires customers to partially cover the cost of technology and hardware to ease cash flow pressure, we do not expect Oracle's cash flow situation to change in the short term.” “It will be several years before (cloud) revenue reaches a scale that can both support continued capacity expansion while generating positive cash flow.”