To The Moon

Oracle Q2 Review: The Market No Longer Buys the RPO Story

Oracle's Q2 FY26 results showcase a soaring AI cloud backlog and strong OCI growth, but also sharply higher capex, negative free cash flow and rising debt, putting Oracle's balance sheet in the spotlight.

From here, the story is less about signing even bigger AI deals, and more about turning the existing backlog into revenue, earnings and cash while keeping the balance sheet under control.

Key Financial Results

For Q2 FY26 (quarter ended Nov. 30, 2025), Oracle reported:

Revenue: USD 16.06 billion, up 13% YoY, slightly below consensus of around USD 16.2 billion.

Non-GAAP EPS: $2.26, well above the Street at $1.64 – but this headline number is flattered by a one-off gain.

During the quarter, Oracle sold its stake in Arm-based server chip maker Ampere, booking roughly USD 2.7 billion of pre-tax gain, worth about USD 0.75 per share. Stripping that out, core EPS lands in the low-USD 1.5 range, actually a bit below expectations.

Non-GAAP operating income reached about USD 6.7 billion, up 8% YoY, with operating margin slipping from 43.4% a year ago to 41.9%. Profitability is still solid, but it is not expanding in line with the top-line acceleration.

Cloud Is Accelerating; the Big EPS Beat Was Largely Driven by One-Time Gains

~Total cloud revenue: roughly USD 8.0 billion, up 33% YoY, now about half of group revenue.

~Cloud infrastructure (OCI): about USD 4.1 billion, up 68% YoY. Management highlighted GPU-related revenue growing roughly +177% YoY.

~Cloud applications: about USD 3.9 billion, up 11% YoY, with “back-office” strategic apps (ERP, SCM, HCM, industry apps) growing around the mid-teens.

On the call, Oracle emphasized that it is now delivering AI capacity at scale, not just signing paper:

~OCI now has 147 customer-facing cloud regions live, with another 64 in development.

~In Q2 alone, the company handed over close to 400 megawatts of new data-center capacity to customers.

~The Abilene, Texas, mega-cluster has already shipped over 96,000 NVIDIA Grace Blackwell GB200 GPUs, and Oracle has started delivering AMD MI355-based capacity as well.

Multi-cloud and dedicated regions are also ramping fast:

~Multi-cloud database consumption is up about 817% YoY, with 45 multi-cloud regions live and 27 more planned.

~Dedicated Region and Alloy partner clouds saw consumption grow 69% YoY, with 39 regions live and 25 in construction.

In short, the AI infrastructure build-out is no longer a slideware story; it is showing up in both revenue and deployment metrics.

RPO Expanded Further, but Its Impact on Near-Term Revenue and Profit Remains Limited

The most eye-catching number in the release is still RPO (remaining performance obligations).

~Total RPO reached USD 523.3 billion, up roughly 433% YoY, and up about USD 68 billion QoQ from USD 455 billion.

~The portion of RPO expected to be recognized within the next 12 months grew 40% YoY, versus 25% in the prior quarter and 21% a year ago.

Management noted that the incremental USD 68 billion of RPO this quarter is not just from existing hyperscale AI customers. It includes new large contracts with names like Meta and NVIDIA, which helps reduce dependence on any single client.

Even so, the time profile matters. A large chunk of this USD 523.3 billion pool will only start to meaningfully hit the P&L from FY27 and beyond. For now, the RPO build is a strong signal of long-term AI demand, but only part of it is driving near-term revenue and profit.

Cash flow and Capex: Rapid growth alongside high CapEx and high leverage

The other half of the story sits on the cash-flow statement and balance sheet.

For Q2:

~Operating cash flow: about USD 2.1 billion.

~Free cash flow: roughly –USD 10 billion, driven by very heavy capital expenditure.

~Capex: around USD 12 billion in the quarter, most of it for data-center equipment; land, power and buildings are largely done via leases and partnerships.

On top of that, Oracle raised its FY26 full-year capex plan:

~Prior guidance: around USD 35 billion.

~New guidance: roughly USD 50 billion, an increase of about USD 15 billion (over +40% versus the earlier plan).

To support this AI build-out, Oracle has been leaning harder on the debt market. Long-term debt now stands at roughly USD 100 billion, up meaningfully over the past year. Credit investors have noticed: CDS spreads have widened, and the market is actively watching how much more leverage Oracle will take on.

Management used the call to give more color on funding and risk control:

~For many large data centers, Oracle does not own the land or buildings; those are leased, so cash outflows start only when facilities are delivered.

~On the chip side, Oracle is using a mix of customer-owned GPUs, leased GPUs and outright purchases. When customers “bring their own chips”, Oracle mainly provides power, cooling and operations.

~The company reiterated its commitment to maintaining investment-grade ratings, and argued that some external models that assume future funding needs of USD 1 trillion are clearly overstated.

Even so, from an equity investor's point of view, the message is simple: the AI build-out is pushing capex up, turning free cash flow negative in the near term, and lifting leverage. The stock's 10%+ post-earnings drop is very much tied to that reality.

Guidance and What the Market is Watching

For Q3 FY26, Oracle guided to:

~Total cloud revenue: up 40%–44% YoY in USD.

~Total revenue: up 19%–21% YoY in USD.

~Non-GAAP EPS: USD 1.70–1.74 in USD.

The cloud and AI growth outlook is strong, but the overall guidance is not aggressively above what many investors had already penciled in after the RPO “shock” in Q1. At the same time, full-year FY26 revenue guidance is kept unchanged even after the latest RPO jump.

Putting the numbers and the call together, the Street is now focused on three things:

1. Execution on AI and cloud

OCI, databases and industry clouds are all growing fast. Investors want to see this translate into a steady climb in actual cloud revenue, not just backlog.

2. Balance-sheet and cash-flow discipline

Capex is rising faster than expected, free cash flow is temporarily negative, and debt is high. The market is watching how quickly the new capacity ramps, what returns Oracle earns on this invested capital, and when free cash flow turns back up.

3. RPO conversion and diversification

The USD 523.3 billion backlog is a huge asset, but its value depends on timing, pricing and customer concentration. The addition of new mega-customers like Meta and NVIDIA helps, but investors will track how broadly these AI deals spread across enterprises and governments over the next few years.

@TigerStars  @CaptainTiger  @TigerWire  @Daily_Discussion  @Tiger_chat  @Tiger_comments  @MillionaireTiger