Tech company Oracle (ORCL 1.84%) has lived many lives since its founding in 1977. It initially gained success as a database software company, then made a number of acquisitions that brought it into the cloud computing age.
Now, the company is focused on artificial intelligence (AI), which is a natural extension of its past accomplishments. AI requires huge amounts of data for accurate task execution, and it's stored in databases. AI also needs immense computing power, which makes cloud computing's data centers the ideal place for artificial intelligence to live.
Does AI's natural fit into Oracle's business make the tech giant a good investment in the hot AI sector? The answer requires unpacking how the company is faring in this highly competitive field.
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AI is supercharging Oracle's sales
AI may be the biggest phase of Oracle's life to date. The technology has drastically boosted the company's fortunes. To understand the impact, let's first look at where it stood at the close of its 2025 fiscal year, ended May 31.
The conglomerate's fiscal fourth-quarter sales reached $15.9 billion, an 11% year-over-year increase. Its remaining performance obligations (RPOs), which represent future revenue Oracle expects to receive from customer contracts, rose 41% in the quarter from the prior year to $138 billion.
NYSE: ORCL
Key Data Points
These were excellent results, yet Chief Executive Officer Safra Catz said the company's 2026 fiscal year "will be even better as our revenue growth rates will be dramatically higher."
So expectations were elevated when Oracle issued its earnings report for fiscal 2026's first quarter, ended Aug. 31. Revenue in the quarter rose 12% year over year to $14.9 billion. While the growth was good, this result wasn't quite the "dramatically higher" outcome Catz predicted.
Instead, that part showed up in the company's RPO of $455 billion, a 359% year-over-year increase, and spectacularly higher than the fiscal fourth quarter's $138 billion. The growth was due to customer demand for the company's AI infrastructure.
Wall Street's surprise over Oracle's success
Wall Street was stunned by the outsized RPO expansion, with the analyst Brad Zelnick of Deutsche Bank saying, "We're all kind of in shock, in a very good way."
The stock soared on the news for its best day since 1992, catapulting co-founder and Chief Technology Officer Larry Ellison past Tesla CEO Elon Musk to briefly become the world's richest person.
It may be difficult to believe, but the first-quarter result is just the start. According to Catz, "Over the next few months, we expect to sign up several additional multibillion-dollar customers, and RPO is likely to exceed half a trillion dollars."
Ellison added that he anticipates revenue "to grow substantially every quarter for several years." This sales increase will come from the expansion of Oracle's data centers to support AI demand.
Ellison sees a future where the rise of robots operated by AI will require greater computing power, necessitating more of the company's data centers. His prediction may not be far off with the arrival of robotaxi services from the likes of Tesla, which is also working on AI-powered humanoid robots.
But building more data centers isn't cheap. Oracle's fiscal first-quarter capital expenditure (capex) skyrocketed to $8.5 billion compared to $2.3 billion in the previous year.
This outcome warrants keeping an eye on the company's capex in subsequent quarters. If the first-quarter pace continues, paying out dividends to investors could eventually become financially untenable. In the first quarter, Oracle declared a dividend of $0.50 per share and last raised the payout by 25% earlier this year.
To buy or not to buy Oracle stock
Oracle's phenomenal RPO growth demonstrates the company's success at capturing AI sales. With management touting RPO's ongoing rise, now seems to be a good time to pick up shares. Or is it?
Answering that question necessitates a look into Oracle's share price valuation. This can be done using the price-to-earnings ratio (P/E), a commonly used metric telling you how much investors are willing to pay for a dollar's worth of earnings. It's helpful to compare the company's P/E multiple to other AI cloud competitors, such as Microsoft and IBM.
Data by YCharts.
With Oracle's share price surge following its fiscal first-quarter earnings release, the chart shows its P/E has soared and is now far above that of its rivals. This suggests the stock is overpriced.
As a result, while Oracle is succeeding in the AI arena, now is not a good time to pick up its stock. The company is a worthwhile investment in artificial intelligence, but wait for its share price to drop before buying.
