Big Question for Oracle Cloud + AI Business: How High Can It Go?

Bob Evans (0:00)

Hello, my friends, welcome back to Cloud Wars Minute. So we had some big numbers reported from Oracle last week for Q1. And I think when we look at that, and the innovation that they're applying on, not just the technology side, but the business model side within their Cloud and AI business, I think the big question for Oracle is how high can it go? How steep can these growth rates get to? I think that the Q1 results and the Q1 discussion in the earnings call, I hope will put to rest some of the just sort of wild-eyed, often groundless speculation about, oh my God, how is Oracle gonna pay for all this? How will they go over the CapEx hurdles? They're not as big and wealthy as Microsoft and Amazon and Google. How in the heck are they gonna pay for all this?

Well, I think as I said, we got some answers, but let me set the stage here. Q1 Cloud revenue for Oracle is $11.6 billion, up 62% of that $7.4 billion came from Cloud infrastructure, and that growth rate for OCI was 121%.

At the same time, Oracle's RPO, remaining performance obligation, you can think of it as backlog or pipeline, fully contracted business, not yet recognized as revenue, jumped 46% to $664 billion. So you've got this enormous backlog sitting out there in the future, waiting to be converted to revenue. We're starting to see this happen now with this OCI number 7.4 billion, up 121%.

So for the last several quarters, the OCI growth rate has been rising pretty, very steadily and often dramatically, not 121%. I think this is going to go up more as this giant RPO number, some of it starts to get kicked over into revenue. And Oracle said that about half of that $664 billion, so $330 billion will roll over into revenue within the next three years.

Now, when you take a look at this happening, it's not just the technology, as I mentioned, but this business model innovation. Oracle is aware that there's a limit to how much a company of its size can devote toward CapEx. In the last quarter, I think Q1, it was $28 billion. They're looking for ways to try to stem that flow of CapEx from within Oracle out to pay for this data center expansion. But Oracle says, we know it's going to take more capital. We're trying to figure out ways that that capital can come from other sources. So three ideas that CEO Clay McGuirk mentioned on the earnings call. He said, they're working quite well. First, these business model innovations. One, suppliers, some suppliers are willing to defer payment that Oracle has to make to those suppliers until Oracle customers have begun to pay for the delivery of their data center services. So that's one way. Another one, customers are supplying some of the hardware, reducing the outlay that Oracle has to make up front. And the third one that I thought was pretty interesting, McGuirk said, a lot of companies, whether they're startups or big established companies, are putting together big pools of money and they're telling Oracle, hey, we will pay in advance for the services we want. We know that's going to help you get over your CapEx hurdle. And that in turn will give us the customer the services we want and need more quickly. So you've got this incredible demand from, that all of the hyperskillers are facing. And that is spurring now some of this business model innovation that McGuirk talked about. How do we get these services that everybody wants and everybody is wanting to pay a lot of money for into the hands of those customers in ways that don't just require this blunt force spending by the vendor of all that capital required to build out these data centers. So, wild times here in the Cloud Wars, where we see that business model innovation go to market innovation are becoming as important now as the technological innovation behind it all. So, really tip my hat to Oracle for a great quarter. I think these results and the thinking that McGuirk shared, and also a lot of other interesting stuff that I'll get to later this week from Oracle CEO, Mike Cecilia, about their applications business. I think this all proves why early this year, I moved Oracle up to number two on the Cloud Wars Top 10, the innovation, the growth rates, this astonishing growth rate we're seeing here. And I got a great chart that will be in an article that I'll have on cloudwars.com later this morning, where I go into more detail about what's happening here. And it shows this very fast growth of the Oracle Cloud Infrastructure business. And now with all that RPO supplying more of the fuel, it will keep that arrow going up and to the right. Thanks for being with us here at Cloud Wars Minute. I hope you have a fantastic day.