By Adam Levine

Oracle's march toward becoming a cloud giant is expected to continue when it reports its fiscal first-quarter earnings on Tuesday afternoon.

On average, Wall Street analysts are projecting adjusted earnings-per-share of $1.48 versus $1.39 a year ago. Revenue is expected to reach $15 billion, up 13% from the first quarter of 2025.

But that sales growth masks a huge shift happening under the surface as Oracle follows the Microsoft playbook. Once just a vendor of packaged software, Oracle is shifting customers to cloud-based versions with annual subscriptions, while at the same time launching a public cloud to compete with Amazon.com's Amazon Web Services and Microsoft's Azure.

What has made Oracle's cloud growth possible has been the artificial-intelligence boom, and the rapidly expanding demand for renting AI servers in the cloud that has resulted from it. Revenue from Oracle's public cloud services were up 52% in the fourth quarter.

Once an asset-light company, Oracle has been aggressively building data centers to fulfill customer demand. Last year, Oracle reported $21 billion in capital expenditures, up from $1.6 billion in 2020 before this shift began. At the end of fiscal year 2025 in May, it had a backlog of customer contracts totaling $138 billion.

The result is that Oracle can look like two different companies--the legacy business and the cloud segment. Analysts are expecting cloud services to be almost half of revenue in the first quarter, up from 25% in the first quarter of 2022. Annual cloud sales growth is seen at 29%, with the rest of the company's sales essentially flat at 0.4% growth.

Before Oracle's cloud services started taking off, from 2012 through 2022, Oracle sales grew at an average rate of only 1.6%. But the company was also a cash-flow machine, allowing management to reduce the company's diluted share count by an annual average of 5.3% through share buybacks, boosting per-share metrics by 84% over that period, compared to what it would have been had the share count not dropped.

Because of the new capex, share repurchases have nearly come to a halt, and the share count is rising again. This is the tradeoff for the rapid growth in cloud, which is starting to take over the company's income statement.

Write to Adam Levine at adam.levine@barrons.com

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September 09, 2025 12:12 ET (16:12 GMT)

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