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# Oracle Corporation (NYSE: ORCL) — Business, Risks and Management's Discussion Oracle's fiscal year ends on May 31. The company's most recent completed fiscal year, ended May 31, 2026, is **fiscal 2026**. The most recent reported quarter, ended August 31, 2026, is the **first quarter of fiscal 2027**. --- ## Business *From the fiscal 2026 Annual Report on Form 10-K, accession 0001193125-26-277521.* Oracle provides products and services that build, run and support enterprise information technology frameworks — enterprise applications and infrastructure offerings that increasingly incorporate artificial intelligence, including embedded AI-driven automation and analytics and generative AI. Offerings are delivered through cloud-based, on-premise and hybrid deployment models, including Oracle Exadata Cloud@Customer and multicloud options that let customers run Oracle software inside other public clouds. ### Three businesses, three operating segments Oracle reports **cloud and software**, **hardware**, and **services**, each a single operating segment. In fiscal 2026 they contributed 87%, 5% and 8% of total revenues respectively (86%, 5% and 9% in fiscal 2025). **Cloud and software** — $58.5 billion of fiscal 2026 revenue. Two revenue streams: - **Cloud revenues** from Oracle Cloud Applications (OCA) and Oracle Cloud Infrastructure (OCI), sold under subscription agreements generally running one to five years, recognised ratably over the contract term or, for usage-model contracts, as services are consumed. - **Software revenues**, comprising perpetual software license revenues (recognised at a point in time on delivery, which makes quarterly license revenue lumpy) and software support revenues, priced as a percentage of net license fees, billed in advance and recognised ratably. Substantially all license customers buy support, and substantially all renew it. **Hardware** — $3.1 billion of fiscal 2026 revenue. Oracle Engineered Systems (notably the Exadata Database Machine), servers, storage, industry-specific hardware, operating systems and virtualization software, plus hardware support. Each hardware product and its essential embedded software are treated as one combined performance obligation, recognised on delivery. Most manufacturing is outsourced to third-party partners, and most hardware is sold through indirect channels. **Services** — $5.7 billion of fiscal 2026 revenue. Consulting services and customer success services, recognised over time as performed. This business carries materially lower margins than the other two. ### The cloud transition The shift from license-and-support to cloud is the central fact of the business. Cloud revenues were **51% of total revenues in fiscal 2026**, against 43% in fiscal 2025 and 37% in fiscal 2024. Within cloud revenue the mix inverted over the same period: cloud applications fell from 65% of cloud revenue in fiscal 2024 to 58% in fiscal 2025 to **47% in fiscal 2026**, while cloud infrastructure rose from 35% to 42% to **53%**. Over the past three fiscal years, customers with annual software support contracts that migrated to Oracle Cloud added **$5.4 billion** of annualised cloud revenue. ### Product portfolio - **Oracle Cloud Applications (OCA)**: Fusion Cloud ERP (including EPM and Supply Chain and Manufacturing), Fusion Cloud HCM, Fusion Cloud CX, the NetSuite Applications Suite for small and mid-sized organisations, and Oracle Health applications, plus cloud industry solutions in communications, construction and engineering, education, financial services, government, healthcare, hospitality, utilities and retail. - **Oracle Cloud Infrastructure (OCI)**: compute (virtual machines, GPU-based offerings and bare metal, for both traditional compute-intensive workloads and AI model training and inference), block/file/object/archive storage, networking, and cloud-native services, plus AI Infrastructure, generative AI and agentic AI services. Deployment variants include Oracle's Multicloud Database offerings (Oracle AI Database running inside other hyperscalers), Exadata Cloud@Customer, OCI Dedicated Region, OCI Sovereign Cloud, Oracle Alloy for partners, and Compute Cloud@Customer / Roving Edge Infrastructure at the network edge. - **Oracle Autonomous AI Database**, self-driving and self-tuning, available serverless or dedicated on OCI, hybrid via Exadata Cloud@Customer and OCI Dedicated Region, and in multicloud deployments. - **Infrastructure software licenses**: Oracle AI Database, MySQL (with MySQL HeatWave), Oracle Middleware, and Java. - Recent AI database functionality includes AI Vector Search, Select AI and Private AI Agent Factory, letting customers apply generative AI to their own data without duplicating it, with a choice of large language model. ### Research, people, seasonality, competition Oracle invested **$10.3 billion, $9.9 billion and $8.9 billion in research and development** in fiscal 2026, 2025 and 2024. It employed approximately **141,000 full-time employees as of May 31, 2026** — roughly 49,000 in the U.S. and 92,000 internationally, with average tenure of about eight years. Revenues and operating margins are seasonally highest in the fourth fiscal quarter and lowest in the first. Named competitors include Adobe, Alphabet, Amazon.com, Cisco, Intel, IBM, Microsoft, Salesforce and SAP, plus Hewlett-Packard Enterprise and Workday; in healthcare IT, following the Cerner acquisition, Allscripts, Arcadia Solutions, athenahealth, Epic Systems and InterSystems. Leadership changed materially in fiscal 2026. Clay Magouyrk and Mike Sicilia have served as **Chief Executive Officers** since September 2025; Larry Ellison remains Executive Chair and Chief Technology Officer; Safra Catz became Executive Vice Chair of the Board in September 2025; and **Hilary Maxson joined as Chief Financial Officer in April 2026** from Schneider Electric. Oracle's chief operating decision makers are its Chief Executive Officers and its Chief Technology Officer. --- ## Risk factors *From the fiscal 2026 Annual Report on Form 10-K, accession 0001193125-26-277521.* ### Data center capacity, power and the capital cycle This is the risk that has grown most with Oracle's strategy. Growing OCI requires large capital and operating expenditures, long-term leases with third-party data center providers, and significant commitments to suppliers of chips and other infrastructure. Both directions of the demand estimate are dangerous: underestimating leaves Oracle short of capacity and losing business to competitors; overestimating locks it into multi-year commitments for excess space, capital expenditures and associated financings without corresponding revenue. Lease terms, renewal options and pricing adjustments typically **do not align with the duration and pricing of customer contracts**, and capacity that is not renewed may not be re-lettable on acceptable terms. Expansion depends on permitted build sites, reliable power, networking hardware and server availability including GPUs and memory. Oracle states it **has faced, and may continue to face, challenges securing reliable and cost-effective power**, which is globally constrained by AI compute demand; power prices are volatile, and Oracle may enter long-term power purchase arrangements extending beyond customer contract terms, exposing it to counterparty, pricing and collateral risk. Government-imposed limits or moratoria on data center construction, land use and zoning, environmental permitting, energy and water rules, and grid reliability requirements could delay or prevent projects. These investments "may require significant cash outlays before, or in excess of, the revenues or cash flows generated by the related capacity." ### Customer concentration and credit Oracle discloses that in certain OCI offerings it is "more concentrated among a number of large customers," which increases exposure to non-payment and non-performance. Some customers may be highly leveraged and subject to their own operating and regulatory risks. Credit analysis, monitoring and prepayments under some committed contracts cannot fully eliminate that risk. ### Supply chain and components Some technologies and components are single-sourced. Industry supply capacity for AI accelerators including GPUs, and for memory devices, is competitive, and Oracle says it "at times [has] to accept less favorable terms with suppliers to minimize supply constraints" — which secures capacity but **increases excess and obsolescence risk** and could hurt profitability and cash flows. Actual useful lives, performance and failure rates of components may differ from expectations, producing unplanned repair or replacement costs. Delayed components can leave Oracle carrying operating costs on data center capacity that is not yet revenue-generating. ### Indebtedness As of May 31, 2026, Oracle had **$129.5 billion of outstanding indebtedness maturing between calendar 2026 and calendar 2066**, and expects to incur more to finance capital expenditures, investments, acquisitions, dividends and refinancings. Risks named: higher fixed obligations and interest expense; covenants; variable-rate exposure; refinancing on worse terms; disruptions in credit markets, reduced liquidity or lender concentration limits raising borrowing costs. A **ratings downgrade** could reduce access to or raise the cost of commercial paper, affect the terms or availability of long-term commitments including data center leases, limit eligibility to contract with certain customers, and increase collateral or letter-of-credit requirements. Rising interest expense could also limit Oracle's ability to use foreign tax credits. ### Equity structure and dilution Conversion of the 6.50% Series D Mandatory Convertible Preferred Stock and the related depositary shares, payment of preferred dividends in common stock, or issuance of shares under the at-the-market program will dilute common holders and may depress the share price. Oracle also warns the ATM Program may not be fully implemented and that disruptions in equity markets could limit access to equity financing. Common stock ranks junior to the Mandatory Convertible Preferred for dividends and on liquidation, where the preferred carries a **$100,000 per share liquidation preference** plus accumulated unpaid dividends. ### Cloud strategy and revenue recognition Because cloud revenue is recognised ratably or on consumption while license and hardware revenue is recognised on delivery, "any deterioration in sales activity associated with our cloud offerings may not be immediately observable" in the income statement. Oracle may also be unable to backfill reduced demand for software, hardware and support as customers transition. ### AI products and AI regulation Oracle is building AI into its products and has made significant investments in AI infrastructure and headcount, relying in part on partners and suppliers. Failure of AI products to perform, higher-than-expected build costs, or stronger competitor products could mean the investment is not recouped. Separately, the EU AI Act is phasing in through 2030, the U.S. federal framework remains in development with state-level legislation enacted, and Oracle identifies potential government restrictions on AI infrastructure, compute resources, model weights, cross-border AI services, customer access, and localization or nationalization initiatives. ### Workforce restructuring Oracle has an existing restructuring plan under which it continues to adjust its workforce, and states that **the adoption and deployment of AI technologies across its operations have resulted, and may continue to result, in reductions to its workforce**. Restructurings risk higher costs, lower productivity, skill shortages, loss of institutional knowledge, and failure to realise expected savings within the expected timeframe. ### Other substantive risks - **Quarterly volatility**: a substantial portion of license and hardware contracts close late in a quarter against a largely fixed short-term cost structure; results may also swing on the timing and amount of capital expenditures, which vary with supplier pricing, tariffs and construction timelines. Marketable and non-marketable investment fair-value changes have contributed to net income volatility "not reflective of our core businesses." - **Cybersecurity**: Oracle believes it is a target because it stores health sciences (including patient health information), financial services, retail, hospitality, telecommunications and government data; attacks "have led" to compromise of personal or confidential information. - **Privacy regulation**: GDPR penalties reach €20 million or 4% of worldwide revenue, whichever is greater. - **Multicloud as a two-way door**: OCI multicloud services work with Microsoft Azure, Amazon Web Services and Google Cloud, which could equally lead customers to migrate away from Oracle. - **Government customers**: budget cycles, appropriations, shutdowns, FedRAMP and Department of War CMMC cybersecurity requirements, and termination for convenience. - **Healthcare regulation**: FDA-registered medical devices, CEHRT certification, the federal Anti-Kickback Statute and False Claims Act. - **Tax**: audits in the U.S. and internationally, OECD-driven changes, and digital-services taxes. - **Currency**: principal exposures include the Australian Dollar, Brazilian Real, British Pound, Canadian Dollar, Euro, Indian Rupee, Japanese Yen and Saudi Riyal. - **Minority-held listed subsidiaries**: Oracle Financial Services Software Limited (India) and Oracle Corporation Japan. - **Securities litigation**: Oracle is a named defendant, with certain officers and a director, in a putative stockholder class action alleging securities-law violations in connection with a drop in its stock price. --- ## Management's discussion — fiscal 2026 *From the fiscal 2026 Annual Report on Form 10-K, accession 0001193125-26-277521.* ### Revenue Total revenues were **$67.4 billion in fiscal 2026, up 17% as reported and 16% in constant currency** from $57.4 billion in fiscal 2025. The $10.0 billion increase comprised a $9.3 billion increase in cloud and software, a $510 million increase in services and a $148 million increase in hardware. In constant currency, **cloud infrastructure contributed 84% of the growth in cloud revenues and cloud applications 16%**. By region, the Americas, EMEA and Asia Pacific contributed 88%, 5% and 7% of constant-currency total revenue growth. Hardware growth came from Exadata and other strategic hardware; services growth came from consulting. ### Costs and margin Total GAAP operating expenses rose $7.0 billion. The dominant driver was a **$6.0 billion increase in cloud and software expenses, primarily higher infrastructure expenses**, alongside a $1.5 billion increase in restructuring and other expenses and a $412 million increase in research and development (employee-related and computer equipment). Offsets were a $636 million decrease in amortization of intangible assets as assets became fully amortized and a $320 million decrease in sales and marketing. Operating income was **$20.6 billion, up 17% as reported and 13% in constant currency**. Total margin as a percentage of revenues was flat year over year. Within the cloud and software business, constant-currency margin percentage *decreased*, because a $5.7 billion constant-currency increase in infrastructure expenses outpaced revenue growth. Management expects cloud and software expenses to keep growing "during fiscal 2027 and in the next few fiscal years" as data center capacity expands. ### Below the operating line Interest expense rose on higher average borrowings from **$43.0 billion of senior notes issued in fiscal 2026** (after $14.0 billion in fiscal 2025). Non-operating income, net increased $3.5 billion, driven principally by a **$2.7 billion gain on the sale of Oracle's investment in Ampere Computing Holdings LLC**, a $380 million gain from other investments, a $205 million increase in deferred-compensation portfolio gains and a $202 million increase in interest income. The provision for income taxes rose, chiefly on a **$933 million unfavorable impact from the U.S. One, Big, Beautiful Bill Act** signed July 4, 2025, which required remeasurement of a deferred tax liability recorded in fiscal 2021 as part of a partial legal-entity realignment, plus $589 million of unfavorable jurisdictional earnings mix — substantially offset by a $1.5 billion increase in stock-based compensation tax benefits. The GAAP effective tax rate was **12.6% in fiscal 2026** (12.1% in fiscal 2025); excluding the items management adjusts for, the rates were 19.9% and 19.7%. Net income was **$17.1 billion** against $12.4 billion. ### Capital and liquidity - **Capital expenditures rose from $21.2 billion in fiscal 2025 to $55.7 billion in fiscal 2026**, on data center expansion. Management expects the upward trend to continue in fiscal 2027 and following years. - Operating cash flow was **$32.0 billion**, up $11.2 billion, including $4.6 billion of cash inflows from customer prepayments with a significant financing component. On Oracle's own measure — operating cash flow less capital expenditures — **free cash flow was negative $23.7 billion in fiscal 2026, against negative $394 million in fiscal 2025**. - Investing outflows rose $30.1 billion, driven by a $34.4 billion increase in capital expenditures, partly offset by $4.3 billion of proceeds from the Ampere sale. - Financing inflows rose $39.2 billion, on $42.7 billion of net senior note proceeds, $5.0 billion of net proceeds from the Mandatory Convertible Preferred Stock, and $1.3 billion net from employee stock programs. - Dividends paid were **$5.8 billion** ($2.00 per common share totalling $5.7 billion, plus $1,263.89 per preferred share totalling $63 million). Buybacks were nearly dormant: 0.4 million shares for $93 million, against 3.9 million shares for $600 million in fiscal 2025, leaving $6.3 billion of authorization. - In March 2026 Oracle terminated its $6.0 billion five-year revolver and entered a new **$10.0 billion five-year revolving credit agreement** (undrawn at year end), and increased its **commercial paper program to $10.0 billion** ($1.5 billion outstanding at May 31, 2026). - Gross unrecognized income tax benefits, including interest and penalties, were **$13.2 billion**. ### The fiscal 2026 financings Oracle issued **$43.0 billion par value of senior notes during fiscal 2026** across fourteen tranches maturing between February 2029 and February 2066, with coupons from 4.45% to 6.85% (the largest being $5.0 billion of 5.70% notes due February 2036 and $5.0 billion of 6.70% notes due February 2056, plus $500 million of floating rate notes due February 2029). On February 5, 2026 it issued 100,000,000 depositary shares representing 50,000 shares of **6.50% Series D Mandatory Convertible Preferred Stock** for $5.0 billion net. On February 2, 2026 it entered an equity distribution agreement for an **at-the-market program of up to $20 billion**, under which no shares had been sold as of May 31, 2026. All were issued for general corporate purposes, which may include capital expenditures, debt repayment, investments or acquisitions, and dividends or buybacks. ### Backlog **Remaining performance obligations were $638 billion as of May 31, 2026, against $138 billion a year earlier**, the increase attributable to certain significant cloud contracts entered into during the period. --- ## First quarter of fiscal 2027 (quarter ended August 31, 2026) *From the Quarterly Report on Form 10-Q, accession 0001193125-26-389274, and the results release furnished on Form 8-K, accession 0001193125-26-387905.* ### Results Total revenues were **$19.3 billion, up $4.4 billion or 30%** year over year. Cloud revenue was $11.6 billion, up 62%; within it, cloud infrastructure grew 121% to $7.4 billion and cloud applications grew 10% to $4.2 billion. **Cloud revenues reached 60% of total revenues, against 48% a year earlier.** Software revenue declined to $5.6 billion as customers migrate to cloud; hardware was $774 million (up $104 million) and services $1.4 billion (up $65 million, being an $88 million rise in consulting partly offset by a $23 million decline in customer success). In constant currency, cloud infrastructure supplied 91% of cloud revenue growth and cloud applications 9%; the Americas supplied 90% of total constant-currency revenue growth. Total operating expenses rose $2.0 billion to $12.6 billion. A **$2.8 billion increase in cloud and software expenses, primarily infrastructure**, was partly offset by a $321 million decrease in restructuring and other, a $252 million decrease in sales and marketing, a $218 million decrease in intangible amortization, a $90 million decrease in research and development and a $47 million decrease in services expense. Operating income was $6.7 billion. Interest expense rose to $1.4 billion on the fiscal 2026 note issuances. Net income was $4.8 billion, and net income available to common shareholders $4.7 billion after $81 million of preferred dividends. The GAAP effective tax rate was 15.1%, against 14.6%. ### The balance sheet turn The quarter's story is capital intensity. **Capital expenditures were $28.5 billion, against $8.5 billion in the first quarter of fiscal 2026.** Property, plant and equipment, net rose to $127.8 billion from $100.0 billion in three months, with construction in progress alone at $48.5 billion. Quarterly depreciation more than doubled to $3.2 billion from $1.4 billion. Total assets reached $303.3 billion. That capital outran the cash the business produced: **free cash flow was negative $5.4 billion** in the quarter — $23.1 billion of operating cash flow less $28.5 billion of capital expenditure — against negative $362 million a year earlier. Operating cash flow itself was **up $15.0 billion**, and includes **$11.4 billion of customer prepayments carrying a significant financing component** — there were none in the comparable quarter. The shortfall was met from equity rather than borrowing: Oracle **fully utilised the ATM Program, issuing 141 million common shares for $19.9 billion net**, while debt was net repaid — $3.1 billion of scheduled debt repayments, $1.1 billion of commercial paper and $830 million of net short-term financing related to capital expenditures. Senior notes and other long-term borrowings outstanding were $125.0 billion at August 31, 2026, against $128.1 billion at May 31, 2026; their estimated fair value was $105.7 billion, against $114.4 billion. That pair is stated on the senior notes and other long-term borrowings basis Oracle uses for its fair value disclosure, which includes the current portion of those borrowings but excludes commercial paper; on the balance sheet's total borrowings basis — notes payable and other borrowings, current and non-current — the same May 31, 2026 date carries the $129.5 billion of indebtedness cited under Indebtedness above. Management expects fiscal 2027 capital expenditures to exceed fiscal 2026's. ### Commitments not yet on the balance sheet Two figures dominate the forward obligation picture. As of August 31, 2026, Oracle had **$288 billion of additional lease commitments, substantially all data center arrangements**, expected to commence between the second quarter of fiscal 2027 and fiscal 2029 for terms of fifteen to nineteen years, none of it reflected on the balance sheet or in the lease maturity table. Separately, **unconditional purchase and certain other obligations of one year or greater totalled $34.2 billion**, primarily long-term supply arrangements for cloud infrastructure components and data center power. Recognised lease liabilities were $34.6 billion operating and $9.2 billion finance. ### Backlog and guidance **Remaining performance obligations were $664 billion as of August 31, 2026, against $455 billion a year earlier** — a $209 billion increase. Oracle expects to recognise approximately 13% as revenue over the next twelve months, 37% over months 13 to 36, 34% over months 37 to 60, and the remainder thereafter. Management stated it booked more than $30 billion of additional AI cloud contracts in the quarter, delivered more than 300,000 GPUs since the end of fiscal 2026, added 850MW of data center capacity, and that the structuring of the new contracts implies no incremental impact on its capital-raising plans. Management's forward guidance, given with the September 10, 2026 results, points to continued growth of a similar order in the second quarter of fiscal 2027, led by cloud, with full-year fiscal 2027 total revenue expected to be at least $90 billion. One wrinkle in the comparison: the year-earlier second quarter included the one-time Ampere investment gain, so on an all-in basis Oracle expects second-quarter non-GAAP earnings per share to *decline* year over year even as the underlying business grows. ### Restructuring Restructuring and other expenses fell to $94 million from $415 million, comprising $165 million of restructuring expense (against $402 million) net of $71 million of other credits, largely insurance receipts on a legal matter. The **Fiscal 2026 Oracle Restructuring Plan** — approved during fiscal 2026 to implement strategic measures and improve operational efficiency "including through the adoption and integration of artificial intelligence technologies across certain functions" — carried total estimated costs of **up to $2.1 billion as of August 31, 2026**, of which $1,971 million had been accrued to date and $410 million remained accrued on the balance sheet. ### Other items in the quarter - **TikTok**: the substantial majority of Oracle's $2.4 billion of non-marketable equity and debt investments were with **TikTok USDS Joint Venture LLC, an equity method investee in which Oracle holds a 15% ownership interest**. - **No share repurchases** occurred during the quarter; $6.3 billion remained authorized. - Oracle adopted ASU 2025-06 on internal-use software prospectively effective June 1, 2026, with no material impact. - **Rule 10b5-1 plan**: Lawrence J. Ellison, Executive Chair and Chief Technology Officer, adopted a new trading plan on June 22, 2026, scheduled to terminate October 24, 2026, permitting the sale of up to **50 million shares** of Oracle common stock. - **Litigation**: In the Netherlands privacy class action brought by The Privacy Collective, the Dutch Supreme Court held on July 17, 2026 that the Court of Appeal had applied the wrong standard for evaluating a class action and remanded the case; Oracle served a Writ of Summons on July 27, 2026. In the securities class action over statements about Oracle's cloud infrastructure business, filed February 3, 2026 in the U.S. District Court for the District of Delaware and amended July 14, 2026 against Oracle, its Chief Technology Officer, one Chief Executive Officer, two other executives and a board member, defendants were required to respond by September 16, 2026, with any motion to dismiss fully briefed by December 18, 2026. Oracle believes it has meritorious defenses in both matters. --- ## Subsequent events *Post-period events disclosed in the Quarterly Report on Form 10-Q for the quarter ended August 31, 2026, accession 0001193125-26-389274.* - **Restructuring plan supplemented by approximately $700 million.** Subsequent to August 31, 2026, management supplemented the Fiscal 2026 Oracle Restructuring Plan by approximately $700 million to reflect additional actions it expects to take, above the up-to-$2.1 billion total estimated as of the balance sheet date. These costs will be recorded to restructuring and other expense through the end of the plan. - **Dividends declared in September 2026.** The Board declared a quarterly cash dividend of **$1,625 per share** of outstanding Mandatory Convertible Preferred Stock, payable October 15, 2026 to holders of record October 1, 2026, and **$0.50 per share** of outstanding common stock, payable October 23, 2026 to holders of record October 9, 2026. The quarterly report discloses no post-period acquisitions, divestitures, new debt or equity financings, or litigation outcomes.