--- title: "Oracle Without a Plan B: A High-Stakes Gamble on Computing Power to Challenge AWS" type: "News" locale: "en" url: "https://longbridge.com/en/news/289413423.md" description: "Oracle released its Q4 FY2026 earnings report, with revenue and EPS beating expectations. IaaS revenue surged 93% year-over-year, and RPO jumped significantly to $638 billion. However, full-year capital expenditures reached $55.7 billion, exceeding guidance, and the company plans to raise $40 billion in FY2027 (including a $20 billion secondary offering), sparking concerns about shareholder dilution. Despite robust AI demand, the stock skidded more than 10% in after-hours trading due to high CapEx and dilution risks" datetime: "2026-06-11T05:05:48.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/289413423.md) - [en](https://longbridge.com/en/news/289413423.md) - [zh-HK](https://longbridge.com/zh-HK/news/289413423.md) --- # Oracle Without a Plan B: A High-Stakes Gamble on Computing Power to Challenge AWS After the U.S. market closed on June 10, Oracle released its Q4 FY2026 earnings report, beating expectations on nearly all core metrics—revenue came in at $19.18 billion, a 21% year-over-year increase, surpassing the Wall Street consensus of $19.1 billion; Non-GAAP EPS was $2.11, nearly 8% higher than the consensus estimate of $1.96. The after-hours reaction, however, saw the stock price plummet by over 10%. The Nasdaq itself had fallen nearly 2% that day, with CPI data hitting a three-year high, putting pressure on the broader market. Yet Oracle’s decline far exceeded the index, indicating that the market was reacting to more than just macroeconomic noise. ## **The Numbers Look Great, But Investors Aren’t Just Reading the Numbers** Let’s look at the growth side first. IaaS (Cloud Infrastructure) revenue reached $5.79 billion, up 93% year-over-year. The growth sequence over the past eight quarters has been: 45%, 52%, 49%, 52%, 55%, 68%, 84%, 93%—accelerating despite an ever-expanding base, which is extremely rare among large tech companies. RPO (Remaining Performance Obligations) increased from $553 billion in the previous quarter to $638 billion, a single-quarter increase of $85 billion. Management explicitly stated during the conference call that the RPO increments in Q3 and Q4 "came almost entirely from large-scale AI contracts." Taken together, these figures tell a story of extremely strong demand. However, what concerned the market that night was not how strong the demand was, but the cost required to meet it. Full-year capital expenditures for FY2026 reached $55.7 billion, significantly exceeding the previous guidance of $50 billion. CapEx for Q4 alone burned through $15.9 billion. Meanwhile, management announced a plan to raise another $40 billion in FY2027, with $20 billion coming from an ATM (At-The-Market) offering and the rest through debt. The $20 billion secondary offering implies direct dilution for existing shareholders, which was one of the triggers for the after-hours sell-off. ## **Customers Buy Their Own GPUs, Oracle Just Manages Operations** One of the most notable pieces of information from the conference call was the progress of the BYOH (Bring Your Own Hardware) model. BYOH means that customers pay for GPUs themselves or prepay large sums of money, then hand over the hardware to Oracle to operate within its data centers. As of this quarter, cumulative customer investments flowing in through this model have reached $75 billion. This money is not counted in Oracle’s CapEx, but the resulting operating revenue is included in IaaS revenue. In other words, Oracle is attempting an "asset-light" path—letting customers bear the hardware acquisition costs while Oracle earns operating fees. CEO Clay Magouyrk mentioned during the call that current GPU utilization reached 97.5%. An even more interesting statistic: among expiring GPU leases, 49% of customers chose to renew and retained 92% of their GPUs, while the remaining non-renewed GPUs were immediately resold to customers on the waiting list. Management cited a project-level return on investment of "close to 30%." If this figure is credible, the BYOH model could indeed drive IaaS growth without significantly expanding the balance sheet. However, one point needs attention: the company-wide Non-GAAP operating margin is 44.8%, a figure boosted by the high margins of the traditional Software business. The pure IaaS margin is likely lower than the company average. Management’s long-term target margin for IaaS is 30-40%—which itself suggests that current margins have not yet reached this range. ## **What the $55.7 Billion CapEx Tells Us** Looking at CapEx alongside revenue: FY2026 capital expenditures were $55.7 billion against revenue of $67.4 billion, resulting in a CapEx-to-Revenue ratio of 83%. Operating cash flow was $32 billion (up 54% year-over-year), but it was completely swallowed by CapEx, resulting in negative free cash flow of $23.7 billion for the year. Total debt increased from $92.6 billion to $129.5 billion, a 40% increase in one year. In November 2025, Barclays downgraded Oracle’s debt rating to underweight, warning that it might slip to BBB-, the last threshold for investment grade. However, CreditSights offered the opposite judgment in April 2026, upgrading Oracle’s credit rating to Outperform, arguing that RPO provides sufficient anchor points for future revenue. Management made a commitment during the call: no new debt will be added in the 2026 calendar year. Of the $40 billion financing planned for FY2027, half will come from the ATM offering and half from debt, but the new debt will not be issued until 2027. This statement attempts to draw a line between growth and leverage; whether investors buy into this remains to be seen. Breaking down this $40 billion, the structure is more complex than the surface numbers suggest. At the beginning of the 2026 calendar year, Oracle had already completed two large financings: first, a $25 billion investment-grade unsecured bond issuance (issued in one go in early February, led by Goldman Sachs, attracting $129 billion in oversubscription, with terms ranging from 3 to 40 years across eight tranches); second, a $5 billion mandatory convertible preferred stock issuance (6.50% coupon, conversion price around $160, led by Citi, also heavily oversubscribed). This means the $45-50 billion financing plan for the 2026 calendar year has been largely executed. If the "$40 billion" for FY2027 mentioned in the call includes the $20 billion ATM offering capacity that has been authorized but not yet used, then the actual cap for incremental new debt is only $20 billion, and management has promised no debt issuance in the 2026 calendar year. In other words, the new supply pressure facing the credit market is much smaller than the "$40 billion" figure implies. Another easily overlooked detail: the dilutive effect of the $5 billion mandatory convertible is delayed, with forced conversion only upon maturity; whereas the ATM offering causes continuous but flexible dilution, allowing management to sell shares based on stock price timing. The mechanisms impacting the stock price differ—the former represents certain long-term dilution, while the latter creates near-term uncertain pressure. Changes in revenue structure are also worth noting. The traditional Software business declined 2% year-over-year this quarter, marking the second consecutive quarter of negative growth. SaaS growth has hovered around 10% for eight quarters. Oracle is betting almost all its resources on the IaaS track—if AI computing demand falls short of expectations, it lacks a Plan B. ## **Is a $638 Billion Order Book Enough for Several Years?** An RPO of $638 billion is an astronomical figure. Dividing it by annualized IaaS revenue (approximately $23.1 billion) theoretically "fills" 27 years of capacity. But large enterprise contracts do not work this way. Management disclosed the term structure of RPO: 12% of revenue will be recognized within 12 months, 34% within 13-36 months, and 54% beyond 36 months. Most orders will not convert into revenue until three years later. Short-term revenue growth depends more on existing capacity and the pace of new signings rather than the absolute scale of RPO. Another unanswered question is cancellation clauses. Management did not disclose the default and cancellation conditions for these large AI contracts. However, under the BYOH model, customers have already prepaid real money or purchased hardware, resulting in high sunk costs, making large-scale cancellations unlikely. The FY2027 revenue guidance remains unchanged at $90 billion, implying 34% growth. Q1 guidance projects revenue growth of 27-29%, with Cloud growth of 58-64%. Management also raised the Non-GAAP EPS guidance to $8.05. ## **What to Watch Next** There are three key observation points for FY2027. First, can Q1 IaaS growth remain above 90%? If growth begins to slow, market confidence in the $638 billion RPO will quickly diminish. Second, will the proportion of the BYOH model continue to expand? If the scale of customer prepayments and self-purchased GPUs continues to grow, Oracle’s own CapEx pressure will ease, and free cash flow is expected to turn positive sooner. Third, the direction of credit ratings. The divergence between Barclays and CreditSights reflects two interpretations of Oracle’s balance sheet by the market. If rating agencies further downgrade Oracle, its financing costs will rise, directly eroding margins. Management provided long-term targets for FY2030: a compound annual growth rate (CAGR) of 31% for revenue and 28% for EPS. If achieved, Oracle’s revenue scale in five years will approach $180 billion, comparable to the current size of AWS. This is an extremely aggressive goal, and its realization depends on whether AI computing demand continues to explode as management expects. Before the earnings release, five major investment banks raised their valuation expectations for Oracle, with TD Cowen giving the most aggressive price target of $300. However, the stock’s performance that night showed that, at least in the short term, the market cares less about whether Oracle can continue high growth and more about how much money this growth will burn. Risk Warning and Disclaimer The market carries risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. 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