Oracle Rises As AI Backlog Hits $664B, Adobe’s Earnings Beat Not Enough for Investors

Zaid Admani (0:00)

Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Friday, September 11th. In today's episode, we'll break down this morning's inflation report and why the odds of a rate hike just jumped. We'll also recap Oracle's earnings and their new pre-order strategy when it comes to AI data centers. Then stick around to the end of the show to find out why returning your online purchases is getting a lot more annoying these days. We got a great show for you today.

Let's go.

Well, stocks kept moving lower this week. The S&P 500 fell 0.6% on Thursday, while the NASDAQ dropped 0.7%, making that the fourth straight red day for the market. And at this point, I think the story driving the stock market has clearly shifted from the AI hype this past summer to macro factors like oil prices and Iran market. Oil prices continued to surge yesterday with Brent crude now trading above $107 a barrel as the war with Iran continues to disrupt the energy market. At the same time, the 10 year treasury yield jumped to 4.94%, while the 30 year yield hit 5.36%, its highest level since 2004 And the fact that the 10 year treasury yield is approaching 5%, I mean, that is a pretty significant psychological level. You know, the 10 year treasury yield is low key most important metric in the financial system and the economy. It influences everything from corporate borrowing costs to mortgage rates. In fact, the average 30 year mortgage rate is back above 7% again. Not to mention higher bond yields make stocks less attractive to investors because investors can just earn 5% lending money to the US government, which is a risk-free return. So the macro picture is getting ugly. And by the way, the CPI report from this morning isn't helping. According to the August CPI report, prices jumped 0.4% in August month over month, and they were up 3.4% year over year. Now, those numbers were in line with expectations, but core inflation, which strips out food and energy prices, came in at 0.3% month over month, which was hotter than the 0.2% that Wall Street expected. So that's a sign that higher energy costs are now bleeding into other prices across the economy. And remember, this inflation report is backward looking. It's for the month of August, and we've seen crude prices jump 15% in September already, so things could continue to get worse. And that's why the odds of a rate hike for the Fed meeting next week just jumped from 70% before the inflation report to 90% now. Now, my personal opinion for the last few months has always been the Fed would hold off on hiking rates until next year, but now it looks like we're getting a rate hike next week. So we are in a very interesting moment for the markets right now. We're gonna be staying on top of all of this, definitely get subscribed to the podcast if you haven't already, and tune in every day to stay in the loop.

Let's run through some headlines. Starting with Oracle. Oracle reported earnings last night, and the stock is getting a nice pop this morning after a pretty strong quarter. Revenues jumped 30% from a year ago to $19.3 billion estimates, while adjusted earnings came in at $1.92 a share versus the $1.74 that was expected. So it was a strong quarter from Oracle, and it was a year ago where Oracle really burst onto the scene, and the market started taking them seriously as a potential winner of the AI boom. Oracle stock hit all the time highs back in September of 2025, but since then, it's been a bumpy ride. The stock is actually down 50% from those levels. But Oracle's business continues to crush it, especially their cloud infrastructure business. This is a part of the company that includes their data centers that they rent to companies for AI computing power. Remedies for the cloud infrastructure were up 121% from a year ago to $7.4 billion. And if you take out that division, the rest of Oracle grew just 3%.

So almost all of Oracle's growth is coming from AI. And the demand for AI compute is still ridiculously high. Oracle signed more than $30 billion in new AI cloud contracts last quarter, pushing their total backlog to $664 billion. That was well above what Wall Street was expecting. Now, there were a couple concerning things in the earnings report when you dig a little deeper. For one, almost half of Oracle's backlog is from a single customer, which is OpenAI. Oracle did say that their non-OpenAI backlog more than doubled in the past year, but still, there is pretty big concentration risk there. The other problem for Oracle is their CapEx. I mean, the cost of building the AI infrastructure and serving the compute continues to explode. Oracle spent $28.5 billion in CapEx this past quarter. Just for some context, a year ago, they spent just $8.5 billion in the same quarter. And all that spending is impacting their free cash flow. It came in at negative $5.4 billion, and the company is sitting on $125 billion in debt. So because of all that AI spending, analysts don't expect Oracle to generate free cashflow again until 2030 Now, what did catch my attention is that Oracle has come up with a pretty interesting way to reduce some of their financial burden. Oracle is now asking their customers to pay upfront for data center capacity and basically moving to like a pre-order model. The company said that for some of these massive AI contracts, their customers are now prepaying Oracle for the computing capacity or the customer goes out and buys the GPUs themselves and gives it to Oracle to put in their data centers. So Oracle is like adopting a BYOC model, you know, bring your own chips. And you know, I think this is a smart move by Oracle because instead of them going out and borrowing billions of dollars and buying a ton of NVIDIA chips and then hoping someone rents them, the customer just signs the contract first and helps pay for the hardware up front. Oracle says they received $14.4 billion in customer prepayments just in the past quarter. So that's a pretty clear sign that demand for AI is not slowing down anytime soon if Oracle is able to get their customers to agree to those terms. But this does not eliminate the risk for Oracle. Oracle still has to build the data centers. They have to secure the power. They got to install everything and actually deliver that capacity. For now, though, the market seems to like the direction that Oracle is headed. And the stock is up around 7% this morning at the time of this recording. Let's talk about some stocks make kin moves today.