Oracle's Q2 2026: Contradictions Emerge on AI Margins, Funding, and Growth Expectations

Date of Call: None provided

Financials Results

• Revenue: $16.1B, up 13% YOY (constant currency)
• EPS: $2.26 non-GAAP, up 51% YOY; $2.10 GAAP, up 86% YOY

Guidance:

• Q3 total cloud revenue growth expected 37%–41% (constant currency) / 40%–44% (USD)
• Q3 total revenue growth expected 16%–18% (constant currency) / 19%–21% (USD)
• Q3 non-GAAP EPS expected $1.64–$1.68 (12%–14% CC growth) / $1.70–$1.74 (16%–18% USD growth)
• FY26 revenue unchanged at $67B; FY27 expected to include ~$4B additional revenue from new RPO
• FY26 CapEx now expected ~ $15B higher than post-Q1 forecast

Business Commentary:

• Revenue Growth and Cloud Expansion:
• Oracle Corporation reported total revenues for Q2 at $16.1 billion, up 13% from the previous year.

• This growth was driven by a significant acceleration in total cloud revenue, which reached $8 billion, up 33% year over year.

• Cloud Infrastructure and Database Growth:

• Cloud infrastructure revenue grew by 66%, reaching $4.1 billion, and cloud database services revenue increased by 30%.

• The growth was primarily due to high demand for AI infrastructure, GPU-related revenue, and autonomous database adoption.

• Remaining Performance Obligations (RPO) and New Contracts:

• Remaining performance obligations ended the quarter at $523.3 billion, up 433% year over year.

• The increase was driven by contracts signed with Meta, Nvidia, and other companies, contributing to a diversified customer backlog.

• Regional Expansion and Capacity:

• Oracle's Infrastructure business now operates 147 live customer-facing regions, with plans for 64 more regions.
• Rapid capacity delivery and strong demand for AI infrastructure across training and inferencing contributed to regional expansion.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management called it "another excellent quarter," reported total revenue up 13% CC to $16.1B, RPO at $523.3B (up 433% YOY), cloud revenue up 33% to $8B, OCI infra up 66% and non-GAAP EPS up 51% to $2.26 — all cited as evidence of accelerating growth and strong demand.
  

Q&A:

• Question from Brad Zelnick (Deutsche Bank): Very specifically, how much money does Oracle need to raise to fund its AI growth plans ahead?
  Response: Oracle will use mixed financing (customer-provided chips, vendor rental models, public/private debt) to minimize capital raised, is committed to an investment-grade rating, and expects to need substantially less than the ~$100B some analysts model.

• Question from Ben Reitzes (Melius Research): How long will it take OCI margins across all data centers to ramp to the 30%–40% range for AI workloads, and what needs to happen to get there?
  Response: Margins depend on mix and getting capacity online; the period with expenses before revenue is only a couple months, and as the majority of capacity is provisioned faster, OCI gross margins should quickly approach the 30%–40% target.

• Question from Tyler Radke (Citi): How are you thinking about selling additional platform services (database, middleware) atop AI infrastructure and differences versus traditional cloud PaaS?
  Response: Oracle is making the DB multi-cloud, vectorizing data and building an AI Data Platform that unifies all enterprise data so leading models can do multi-step reasoning—creating a differentiated AI platform to sell database/middleware/services on top.

• Question from Brent Thill (Jefferies and Company): What would you have to do to convert a data center from one customer to another (e.g., if a large customer couldn't pay)?
  Response: Capacity is highly fungible: hardware can be securely wiped and reassigned in hours; bare-metal instances spin up in minutes and customers typically provision capacity in 2–3 days, so unused capacity is reallocated rapidly.

• Question from Mark Moerdler (Sanford C. Bernstein): Can you talk about the cash flow for a single data center from commitment through becoming cash-flow positive and how that aggregates across centers?
  Response: No cash is spent until the delivered data center is provisioned; cash flows depend on the procurement model (customer-supplied hardware, vendor rent, or Oracle-paid hardware) and timelines simply aggregate—earlier delivery yields earlier revenues and expenses.

• Question from John DiFucci (Guggenheim Securities): Why are you confident applications will accelerate when peers see deceleration—what is driving Oracle's apps growth?
  Response: Apps acceleration is driven by a combined One Oracle product+go-to-market strategy, built-in AI (400+ features, rapid clinical AI agent rollouts), and the AI Data Platform—offering full-suite, integrated solutions that drive upgrades and larger multi-pillar deals.

Contradiction Point 1

AI Margin Ramp

It involves differing expectations about the timeline for achieving AI margin targets, which could impact investor expectations about the company's financial performance.

How long will it take for AI margins across OCI data centers to reach the 30%-40% range? - Ben Reitzes (Melius Research)

2026Q2: We will be able to increase margins because we will be able to increase the capacity of our data centers without increasing our costs. - Clay Magouyrk(CEO)

Was the higher-than-expected CapEx in the quarter aimed at generating additional revenue? - Benjamin Reitzes (Melius Research)

2025Q4: We will be able to reduce our own costs by 50% in the next 24 months. - Clay Magouyrk(CEO)

Contradiction Point 2

AI Growth Plan Funding

It involves financial projections for AI growth, which are crucial for investor expectations and strategic planning.

How much capital does Oracle need to raise for its AI growth plans? - Brad Zelnick (Deutsche Bank)

2026Q2: We expect to require less than $100 billion. We're committed to maintaining investment-grade debt ratings. - Clay Magouyrk(CEO)

Your CapEx in the quarter was $5 billion higher than expected, reaching $21 billion, with expectations now at $25 billion. Can you provide details on the allocation of these funds? - Benjamin Alexander Reitzes (Melius Research LLC)

2025Q4: We don't have a number for you. So there's a lot of different -- it will depend on the customer and how they're all set up. We -- as you know, we have a very wide set of customers. - Safra Ada Catz(CFO)

Contradiction Point 3

OCI Revenue Growth Expectations

It involves predictions for OCI revenue growth, which are crucial for understanding the company's financial outlook.

How long will it take for AI margins across OCI data centers to reach 30%-40%? - Ben Reitzes (Melius Research)

2026Q2: The focus is on getting capacity online. - Clay Magouyrk(CEO)

Safra, can you elaborate on your statement about next year from the press release and this call? - John Stephen DiFucci (Guggenheim Securities, LLC, Research Division)

2025Q4: We see revenue growth of more than 70%. - Safra Ada Catz(CFO)

Contradiction Point 4

Application Growth Acceleration

It involves expectations for application revenue growth, which is essential for assessing the company's overall performance and market positioning.

Why do you believe application growth will accelerate this year compared to your peers? - John DiFucci (Guggenheim Securities)

2026Q2: We're unique with industry suite applications and integrated AI. - Mike Sicilia(CEO)

What's the status of OCI's application developments and can you provide details on Fusion's 22% growth and accelerating growth outlook? - Raimo Lenschow (Barclays Bank PLC, Research Division)

2025Q4: We've got a lot of excitement because we're starting to see now a little bit of acceleration in the applications. - Safra Ada Catz(CFO)

Contradiction Point 5

AI Margin Improvement Timeline

It involves differing expectations regarding the timeline for AI margins to improve, which is critical for understanding the financial trajectory of the company's AI initiatives.

How long will it take for AI margins at OCI data centers to reach 30%-40%? - Ben Reitzes (Melius Research)

2026Q2: We will be able to increase margins because we will be able to increase the capacity of our data centers without increasing our costs. - Clay Magouyrk(CEO)

Can you explain how the higher-than-expected CapEx in the quarter contributes to revenue growth? - Benjamin Reitzes (Melius Research)

2025Q4: We will be able to reduce our own costs by 50% in the next 24 months. - Clay Magouyrk(CEO)