Is ORCL a Buy Following 121% IaaS Growth in Q1 Earnings?

Oracle Corporation ORCL is giving cloud behemoths Microsoft Corporation MSFT and Amazon.com Inc. AMZN a run for their money, delivering strong revenues and earnings growth in its latest quarter on the back of continued cloud infrastructure strength. With momentum building, is now the right time for investors to consider ORCL? Let’s explore –

Oracle’s AI-Driven Growth Is Just Getting Started

Given its size, Oracle’s revenue growth has been exceptional. Oracle’s total revenues reached $19.3 billion in the fiscal first quarter of 2027, up 30% year over year, according to the company’s Sept. 10 press release. Oracle’s revenues improved as customers continue to migrate from on-premises software to the cloud.

To put things into perspective, Oracle’s Cloud Infrastructure (IaaS) revenues reached $7.4 billion, representing a 121% year-over-year increase, while cloud applications revenues reached $4.2 billion, up 10% year over year. This mix is promising, as Oracle’s SaaS business provides a steady recurring-revenue base, while the IaaS business positions the company to capitalize on the AI-driven growth opportunity.

Oracle remains optimistic about its revenue growth prospects. The company expects total revenues to increase by 30% to 34% in the fiscal second quarter of 2027 and reach at least $90 billion for the full fiscal year. This target seems achievable, as the company’s remaining performance obligation, or the revenues guaranteed by contracts that have yet to be recognized, reached $664 billion in the fiscal first quarter, up $209 billion year over year.

Additionally, Oracle’s non-GAAP operating income increased to $8.2 billion in the fiscal first quarter, up 31% year over year, driven mostly by strong demand in Cloud Infrastructure and Cloud Applications. With operating income growing much faster than revenues, Oracle is demonstrating that it is not only increasing sales but also becoming more profitable as it grows.

Oracle: Why ORCL Stock Is a Buy After Earnings

As reflected in the latest quarterly results, Oracle’s accelerating cloud and AI-driven growth, strong revenue visibility, and improving profitability provide the company with a solid foundation to grow. Meanwhile, AI infrastructure is becoming Oracle’s primary growth engine as demand for graphics processing units (GPUs) and cloud capacity surges.

Oracle generated $23 billion in operating cash flow in the fiscal first quarter, up 184% year over year. While free cash flow was a negative $5 billion, investors may consider this cash burn as largely attributable to the company’s heavy investments in GPUs, data centers, and AI infrastructure that could drive stronger revenue growth in the future.

Nonetheless, Oracle appears more efficient at generating profits than its industry peers. This is because Oracle’s return on equity (ROE) of 70.2% exceeds the Computer - Software industry’s ROE of 32.4%.

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Oracle also appears attractively valued compared with its industry peers. According to the price/earnings ratio, ORCL trades at 19 forward earnings, below the industry’s forward earnings multiple of 25.8.

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Therefore, Oracle’s AI-driven growth, robust cash generation, strong profitability, and attractive valuation make ORCL stock an appealing buy for growth-oriented investors. Oracle currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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