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Oracle Corporation (NYSE:ORCL) and NVIDIA Corporation (NASDAQ:NVDA) have given investors another huge AI demand signal, but the economics are more important than the headline.
On September 10, Reuters reported that Oracle booked more than $30 billion of new AI cloud contracts during its fiscal first quarter, helping lift remaining performance obligations to $664 billion. Quarterly revenue rose 30% year over year to $19.3 billion, while adjusted earnings of $1.92 per share also topped expectations. Oracle's negative free cash flow of $5.4 billion was painful, but substantially better than the $9.56 billion analysts expected.
The most important detail for investors is how Oracle is funding the expansion. Capital expenditures reached $28.5 billion during the quarter, but Oracle received $11.36 billion of customer prepayments. Reuters also reported that most of the new AI contracts will not require proportional new capital spending because customers are using structures including prepayments and bring-your-own-hardware arrangements.
NVIDIA Corporation (NASDAQ:NVDA) has a more nuanced read-through. Oracle's backlog confirms that demand for accelerated compute remains enormous. Nvidia benefits to the extent that enterprises and AI labs deploying capacity through Oracle continue to use its GPUs, regardless of whether Oracle or its customers ultimately finance the hardware. However, Oracle's disclosure also undermines a simplistic assumption that every dollar of OCI backlog creates an equivalent amount of incremental Oracle-funded Nvidia spending.