Oracle's Cloud Ambition: Can AI and Infrastructure Shifts Deliver Long-Term Value?

Oracle's upcoming Q4 fiscal 2025 earnings report on June 11 will serve as a pivotal moment for investors to assess the company's transition from its traditional software roots to a high-growth cloud and AI leader. With Remaining Performance Obligations (RPO) soaring to $130 billion—a 62% year-over-year jump—Oracle is betting its investments in AI infrastructure, strategic partnerships, and multicloud capabilities can sustain momentum. But can this shift offset lingering execution risks and competition from hyperscalers like AWS and Microsoft Azure? Let's dissect the opportunities and challenges.

Ask Aime: Oracle's Q4 earnings report next week will offer insights into its AI and cloud strategy. Can its $130 billion in RPO sustain growth?

The Cloud Growth Engine

Oracle's cloud revenue has been the standout performer, with Infrastructure-as-a-Service (IaaS) revenue surging 49% in Q3 to $2.7 billion. This growth is fueled by AI demand: GPU consumption for training large language models (LLMs) has skyrocketed 244% over 12 months.

The Oracle AI Data Platform, launched in Q3, integrates leading models like OpenAI's ChatGPT and Meta's Llama directly into its databases, offering secure private data analysis. This positions Oracle to capitalize on the $50 billion AI infrastructure market, where enterprises increasingly seek hybrid cloud solutions.

Despite Oracle's cloud momentum, its stock has underperformed peers by 10% over six months. This gap reflects skepticism about its ability to convert $130 billion in RPO into revenue amid capacity constraints and rising capital expenditures ($16 billion in 2025 vs. $14 billion previously).

AI as the New Growth Catalyst

Oracle's AI pivot is anchored in two strategic pillars:
1. Partnerships & Ecosystems: Collaborations with OpenAI (ChatGPT training), NVIDIA (Blackwell GPUs), and AMD (30,000 MI355X GPUs) enhance its AI compute capabilities. The “Stargate” initiative—a $100 billion project to build dedicated AI data centers—could solidify Oracle's position as a hyperscaler rival.
2. Differentiated Offerings: The Oracle Cloud Infrastructure (OCI) now supports running databases across Azure and Google Cloud, appealing to enterprises seeking multicloud flexibility.

Analysts highlight OCI's scalability: database multi-cloud revenue jumped 92% in Q3, driven by partnerships with Microsoft and Google. Yet, execution remains key. Oracle missed Q3 EPS estimates by 0.68%, with CEO Safra Catz noting “capacity constraints” slowed revenue conversion.

Financials: Valuation and Risks

Oracle's fiscal 2024 revenue hit $53 billion, with cloud services growing 12%. The Q4 consensus calls for $15.6 billion in revenue (+9%) and $1.64 in EPS, but margins face pressure from $16 billion in CapEx. While non-GAAP operating margins held steady at 44%, depreciation costs from data center investments may weigh on FY26/FY27.

The valuation is a double-edged sword. Oracle trades at 27.7x price-to-book—far above the software sector average of 8.9x—relying on AI growth to justify this premium. Debt, now at $44 billion, adds risk if cloud investments underdeliver.

Investment Takeaways

Bull Case:
- RPO conversion accelerates as data centers expand (e.g., Texas/Salt Lake City).
- Stargate delivers its first contracts, boosting AI revenue.
- OCI's 25%+ IaaS growth outpaces Azure/AWS in specialized enterprise markets.

Bear Case:
- Capacity constraints persist, delaying RPO monetization.
- Hyperscalers undercut OCI pricing, squeezing margins.
- Stargate faces regulatory or geopolitical hurdles.

Ask Aime: Oracle's Q4 earnings reveal AI-driven cloud growth and valuation doubts.

Recommendation:
Oracle presents a high-risk, high-reward opportunity. Historically, a strategy of buying on earnings day and holding for 20 days delivered gains, though with significant volatility—experiencing a maximum drawdown of -34.4% since 2020. Investors should focus on Q4's RPO conversion rate and margin stability. If OCI's AI infrastructure gains traction, Oracle could command a 15%+ revenue growth trajectory—justifying its premium valuation. However, near-term volatility is inevitable.

For now, hold Oracle with a cautiously optimistic outlook, but monitor execution against these metrics:
- Q4 RPO to revenue conversion ratio.
- GPU deployment progress and Stargate updates.
- Margin resilience amid CapEx spending.

In a sector crowded with AWS and Azure, Oracle's AI-differentiated cloud could carve a niche—if the company can finally deliver on its cloud ambitions.