Oracle Reports Results… And Mortgage Rates Top 7% 9/10/26

CNBC's "Fast Money"

This episode of CNBC's 'Fast Money' covers Oracle's strong earnings report, highlighting a surge in cloud infrastructure revenue and growing de

Key takeaways

• Oracle's cloud infrastructure revenue grew by 121% year-over-year, signaling strong demand for AI-driven services.
• The company confirmed no plans to raise additional capital, completing a $20 billion equity issuance program, which eased investor concerns.

Main topics

• Oracle's earnings report and cloud/AI growth
• Rising mortgage rates and their impact on housing

Notable quotes

"The demand story is improving with its backlog, remaining performance obligations in the quarter climbing to $664 billion."

"You look at the margins, we're better than expected. Free cash flow was better than expected."

Conclusion

While Oracle's latest results exceeded expectations and underscored strong demand in AI and cloud

Transcript preview

Speaker 8 (0:00) It's NFL kickoff time. Exclusive NFL team valuations with sports business expert Michael Ozanian. The NFL is by far the most profitable league. NFL team valuations now on CNBC.com slash sport. Speaker 1 (0:16) Live from the Nasdaq market site in the heart of New York City's Times Square, this is Fast Money. Here's what's on tap tonight. Oracle on the rise. Here's Speaker 8 (0:23) the Speaker 1 (0:23) tech giant jumping on his latest earnings report. But can the software company keep the gains coming this time? And what's the deeper read into the AI space? Plus, a mortgage mess. Rates hitting more than one-year highs. Homebuilders taking it on the chin. We dive into the housing trade, what it means for the consumer. And Apple jumps on strong reviews of its new foldable phone, the Fold. Copper miners sink on threat of new tariffs. And can Starbucks shares get re-caffeinated? What the CEO had to say about the company's turnaround plans and whether it's time to buy the stock now. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. We start off with tonight's big tech report. That would be Oracle. That's not jumping. On better than expected results in cloud infrastructure, revenues have more than doubled in the latest quarter. The call kicked off moments ago. Seema Modi's got the details here. Seema. And Speaker 8 (1:11) Melissa, Oracle does say that customer demand for its AI cloud training services continues to grow faster than supply with more than $30 billion of new contracts in the first quarter. So the demand story is improving with its backlog, remaining performance obligations in the quarter climbing to $664 billion. That is up from $638 billion last quarter on financing. Oracle confirming no new plans to raise capital and that it has completed the previously announced $20 billion equity issuance program. So that is likely a sigh of relief for investors. We're still awaiting management to address how politics are at all impacting its data center pipeline. We are looking at shares right now up about 7 % as investors refocus on the demand story. And still, I would point out, down solidly this year. More comments as we get them, especially as we await comments from Larry Ellison. the founder. Speaker 1 (2:02) All right, Seema, thank you. Keep us posted. Seema Modi. And maybe the setup for the stock was perfect going into this report in that everybody was negative. I mean, nobody had a kind word to say about it. No. Speaker 6 (2:14) Well, Steve Grasso last night did to his credit. But I'll say this, you know, the free cash flow, which has been a disaster, wasn't good at 5.4 billion negative, but it was twice as good as the street was expecting, if that makes sense, because the street was looking for negative $10 billion. So maybe they're getting it in line there. Margins were slightly better. But, you know, forget about Oracle for a second. What does this mean, the overall software trade? And I will continue to say I think the software trade can go higher. Oracle, regardless of what it does, IGV, I think, especially on the back of this sprint, is going to continue to do the grind higher. Speaker 4 (2:45) So I think the one thing she said that was so important was no new plans to raise capital. Yeah. Speaker 1 (2:49) Now. Speaker 4 (2:50) Now. And they completed their Speaker 1 (2:52) offering. Speaker 4 (2:52) Right. Right. I wonder how long that now is. And then what I don't. know what the CapEx will actually be. Last thing, they were sort of, along with everybody else, surprising more and more to the upside. And so we want to see what that is because, you know, the debt, we know, is a sort of integral part of the story in the CDS, which reflects higher concern about the debt. But at the moment, this is positive, and I agree, that setup was good going in. Yeah. Speaker 1 (3:19) A lot of Speaker 4 (3:20) bearish sentiment. Speaker 1 (3:21) Yep. I believe the expected CapEx for this fiscal year is $92 billion. Or so. Yeah. So we'll see what number they come up with. I'm Speaker 5 (3:28) going to ultimately defer to diesel over here. But the setup in the options market was pretty crazy. I was even thinking about where the O in Timbo might see a call spread just to kind of measure my risk. Is Speaker 4 (3:40) this the Speaker 5 (3:40) O in Timbo? It is the O in Timbo. It's part of what's taken me down. I mean, it's no badang. Let's put it that way. But I mean, not Speaker 4 (3:46) everything is. Speaker 5 (3:48) But, you know, the cloud revenue is fantastic. The cloud infrastructure up 121 percent, as Seema noted, is very strong. I don't think we ever questioned the demand. The question is, can they fulfill it? And I think this is part of the story. And also we get back to the capital market stuff, which I don't know how they can continue without another raise. So I thought that the risk was much more skewed to the upside. I don't think they could have done a whole lot better than what they announced. And I'll just say I think this result is a little different in the way the options are being priced. I'm glad I didn't pay for calls because, in fact, the upside was very, very expensive. And in fact, I don't think you're getting rewarded here. Speaker 7 (4:25) Yeah. Twelve percent implied move in either direction. And, you know, just think about how. far this stock has come from that quarter going back last September when they got that big open AI contract. And I think that, you know, We're not sitting here after earnings season over the last two months, it feels like, has been going on and on and on, debating whether these companies are going to beat or not. It's just by how much, right? And then when you think about some of the strain that we've seen, I guess, in the ecosystem and how they're financing these sorts of deals, that's fine that they say they're not raising any more capital. Timbo over there is saying that, you know, when? You know what I mean? It's going to happen again. This is a company that has $167 billion in debt. And you think about the size of those contracts, fine. These RPOs keep getting bigger. There is no guarantee that they are going to be able to fulfill those obligations. And when you think about it from an execution standpoint, this is not a company, I think, that has a great track record doing this. So on the demand front, we know it. If SpaceX is selling XAI compute to their biggest competitors, which is Anthropic and Google to some degree, right, then... For all intents and purposes, we get it. We get that there's a lot of demand. But at this stage of the cycle, if they can't deliver for OpenAI or OpenAI falters a bit in their demand, then you have this sort of, I don't know what you want to call it, this chain of events that ultimately will happen. But it's going to start with these companies, these heavily indebted companies. How Speaker 1 (5:43) should we think about that compute in the backlog? Because I spoke to two analysts on Closing Bell Overtime, Gil Laurie of D.A. Davidson and Bernadette Jeffries. And they're saying this is the one company that is building out and is not getting full. credit for that backlog, whereas everybody else, you know, whether it be a NeoCloud, which has no profitability, or Microsoft, they are getting full credit for what they have. Speaker 4 (6:03) Well, I heard that interview talking about CoreWeave specifically, I think, getting, and Nevis, getting credit for theirs. I also think, I mean, maybe the debt isn't quite as bad as we think in that when they proceed with some of these projects that are further out, sometimes they do get paid some of that. up front or coincident. So that helps a little bit. But it's interesting. I don't I think of Oracle as sort of the bellwether for the downside, but not so much for the upside, which maybe isn't fair to them. I don't own it. I don't position. But I mean, this this bar was low enough where this is good. Speaker 6 (6:41) It's an infrastructure company, I think software company as well. But again, we talked about Larry. He pushed all the chips into the middle of the table and. You know, you look at the margins, we're better than expected. Free cash flow was better than expected. I understand there's probably another raise coming. The balance sheet is problematic. But if you believe in the AI story and you think they're the epicenter of this whole infrastructure build, then you have to own this. I'm not convinced of it, by the way, but there are people that absolutely believe it, which makes Oracle very attractive. Speaker 5 (7:09) Look, they added 850 megawatts of capacity during the quarter. They certainly told you about more demand that's there. So I'm not sure what else they could say. To summarize what I think I'm hearing both from Karen and even... Diesel? Well, and Diesel. Diesel, Dan? Speaker 1 (7:25) Is Diesel Dan? Dan. Oh, yeah. Speaker 5 (7:27) Is there a question about that? I didn't know. I don't know. We're gone for a month. We've got to let Mel in on that. It's not fair, and it's probably not fair to folks at home that wonder why we're calling Speaker 1 (7:37) him Speaker 5 (7:37) Diesel. But there was a day then... Dan started talking about diesel prices. And it was so exciting for me to hear Dan in the energy space that not only was it... You know, wow, diesel, but it decided that Diesel Dan is an aggressive name for you. I got it. Were you Speaker 1 (7:51) making a point? Speaker 5 (7:52) My point is that I think that the company is now priced still in a prove-me situation, and there's nothing about the result today that changed that. And yet, I think they gave you everything you can. The price action to me is disappointing if you were expecting, if you're on the long side of this, this should have been a 15 % pop, I think. Speaker 1 (8:08) You mentioned software and the software business on here. Is this the bellwether? I mean, is this the tell on software? Or is Adobe? which we also got. Yeah, which was a little bit of Speaker 5 (8:17) a Speaker 6 (8:17) different story, right? Or is it Salesforce? Exactly. I can rattle off four or five. You're right. I mean, they're all seemingly telling a different story. I guess my point in saying that is I think the death of software that we're talking about six to nine months ago was probably maybe justified at the time, but in retrospect, wildly exaggerated, which is why I think IGV can continue to go higher. Or Speaker 4 (8:38) was it Snowflake or ServiceNow? Right. The list goes on and on for the upside. Speaker 1 (8:43) Well, Speaker 7 (8:44) all right. So if the CEO of Oracle, OK, was sitting next to Dario right after this report and Jim Cramer was interviewing him like they did with Benioff, you were gone. It was part of your thing when you were gone. But, you know, like they report this number, the stock was trading up 5 percent in the aftermarket. Then they shoot to, you know, Benioff and Dario from and then the stock went berserk. Like literally it went berserk. And you think about that. I think it's the association with how are we going to position ourselves if we are not like, you know, AI native, like for all intents and purposes. A lot of these companies were built that way. Oracle was not. They have a lot of legacy business. This business is growing off a low base, which is why it's growing so fast. But, you know, I mean, listen, I'm not saying you guys are right. There's a lot of leverage in this thing. If they ever get a couple quarters correct and they start doing some things, you worry less about actually the balance sheet leverage, then the stock could easily go much higher. some reason, the fact that this stock has been left in the dust and it has, you know, yes, it's had a big bounce. But relative to some of Speaker 4 (9:38) the Speaker 7 (9:38) other stories, I can't imagine some of the top analysts on the street would think that this is particularly interesting right here relative to some of the Speaker 4 (9:45) other. Speaker 7 (9:45) Yeah, a Speaker 1 (9:46) colorful one. Actually, we do. For more on tonight's earnings, as well as a broader tech trade, let's bring in Dan Ives. He is a partner and senior managing director of Yorkville. Ives, Dan, it's always good to see you. Great to Speaker 3 (9:57) be here. Speaker 1 (9:58) Do you like Oracle here? Speaker 3 (10:00) Look, in my view, when you think about the RPO and really the revenue that they have in the backlog, I think the street is almost assuming 50, 60 percent that never happens. They're never going to be able to build out the data center and the conversion of revenue. I think this was a big step