ORCL — FY2026 Annual Financial Report Analysis

Oracle's AI-cloud buildout reached the financial statements in fiscal 2026

Oracle's fiscal year runs June through May, so fiscal 2026 ended on May 31, 2026, and the annual report (Form 10-K) was filed on June 22, 2026.

Revenue grew 17% to $67.4 billion, but the number that defines the year is elsewhere: Oracle spent $55.7 billion on capital expenditures — cash used to build and equip data centers — up from $21.2 billion a year earlier. It funded that with $43.0 billion of new senior notes and $5.0 billion of preferred stock, and still ended the year with negative free cash flow of $23.7 billion. At the same time, contracted-but-not-yet-delivered business jumped from $138 billion to $638 billion.

Fiscal 2026 is therefore not a year to judge on earnings growth. It is a year in which Oracle committed the balance sheet to a cloud-capacity bet whose revenue mostly arrives later.

Key numbers

Operating margin is the share of revenue left after all the costs of running the business, before interest and tax. Free cash flow, as Oracle defines it, is operating cash flow minus capital expenditures — what is left over after paying to build and maintain the infrastructure.

Cloud infrastructure supplied almost all the growth

Revenue rose $10.0 billion. Within Oracle's largest business — cloud and software, 87% of total revenue — the breakdown by offering shows how narrow the growth was:

Oracle states that, measured in constant currency, cloud infrastructure contributed 84% of the growth in cloud revenue and cloud applications the remaining 16%. Taken together, cloud revenue rose from 43% to 51% of the company total — the first year it crossed half.

The two older lines behaved as the cloud transition implies they should. Software license revenue, recognized in full when a licence is delivered, fell 9%. Software support — the recurring maintenance fees attached to that installed licence base — was up 1% in reported dollars but down 1% in constant currency, meaning the small increase came from the dollar weakening rather than from selling more. "Constant currency" restates both years at the same exchange rates, stripping out the effect of currency moves. That distinction matters across the whole report: total revenue grew 17% as reported but 16% in constant currency, and in EMEA the gap is wider still — 9% reported versus 3% in constant currency. Europe's apparent acceleration is mostly the exchange rate.

Geographically the growth is concentrated: the Americas contributed 88% of constant-currency revenue growth, EMEA 5% and Asia Pacific 7%.

Outside cloud and software, hardware revenue rose 5% to $3,084 million (Exadata and other strategic hardware), and services revenue rose 10% to $5,743 million on higher consulting work, with that segment's margin rising from 19% to 27% as its expenses fell slightly.

The cost of capacity is already visible in segment margins

The cloud and software segment's own margin — revenue less the direct expenses management allocates to it — fell from 63% to 59%. Segment expenses rose 56% to $16,850 million, which Oracle attributes to "a $5.7 billion increase in infrastructure expenses." Depreciation on property, plant and equipment nearly doubled, from $3.9 billion to $7.6 billion, as data centers built in prior periods began to be written down.

Yet consolidated operating margin barely moved, at 30.6% versus 30.8%. Three things filled the gap, none of them repeatable indefinitely:

• Amortization of acquired intangible assets fell $636 million (to $1,671 million) as assets from past acquisitions finished being written off. Oracle discloses that this charge drops again in fiscal 2027, to $731 million.
• Sales and marketing expense fell 3% to $8,331 million, on lower employee-related costs.
• Working against those, restructuring and other expenses rose from $374 million to $1,838 million, severance under a new Fiscal 2026 Oracle Restructuring Plan that Oracle says was undertaken to shift resources toward cloud development, sales and delivery.

Strip out the amortization run-off and the flat consolidated margin looks less flat. The underlying direction — infrastructure costs rising faster than infrastructure revenue — is the one the segment disclosure shows.

Why net income grew twice as fast as operating income

Operating income rose 16.6%; net income rose 37.3%. Essentially all of that 20-point gap sits below the operating line, and most of it is not recurring:

• Non-operating income was $3,547 million, against $60 million a year earlier. The largest piece is a $2.7 billion gain on the sale of Oracle's stake in Ampere Computing Holdings, plus $380 million of other investment gains and $202 million more interest income.
• The effective tax rate was 12.6%, versus a 21% U.S. federal statutory rate. Oracle's own reconciliation states that excluding items such as stock-based compensation and restructuring, the rate would have been 19.9% rather than 12.6%. A $1.5 billion increase in tax benefits from stock-based compensation — which depends on Oracle's share price when employee awards vest — was the main driver, partially offset by a $933 million charge from remeasuring a deferred tax liability after the U.S. One, Big, Beautiful Bill Act was enacted in July 2025.
• Pushing the other way, interest expense rose 29% to $4,599 million on the enlarged debt load.

EPS grew slightly slower than net income (+34.3% vs +37.3%) for two reasons: $103 million of dividends on newly issued preferred stock, and diluted share count rising from 2,866 million to 2,914 million.

Takeaway: Fiscal 2026's headline earnings growth is not a read on the business. Operating income grew 16.6%, essentially in line with revenue, while the extra 20 points of net income growth came from a one-time $2.7 billion Ampere gain and a 12.6% tax rate Oracle itself says would have been 19.9% without discrete items. The real signals are the $638 billion backlog on one side and $55.7 billion of capex, $129.5 billion of debt and -$23.7 billion of free cash flow on the other.

The balance sheet now carries the buildout

Operating cash flow rose 54% to $31,977 million, helped by $4.6 billion of customer prepayments on contracts with a significant financing component — cash collected up front on long-dated cloud deals, which Oracle notes it received none of in fiscal 2025 or 2024. Capital expenditures of $55,663 million exceeded it by a wide margin, producing free cash flow of -$23,686 million, against roughly break-even (-$394 million) a year earlier.

The funding came from debt and equity issuance:

• $43.0 billion par value of senior notes issued during fiscal 2026, at coupons ranging from 4.45% on 2030 paper to 6.85% on 2066 paper. Total notes payable and other borrowings reached $129,541 million, up from $92,568 million.
• $5.0 billion of 6.50% Series D Mandatory Convertible Preferred Stock issued February 5, 2026, converting automatically into common shares on January 15, 2029. At 6.50% on its $5.0 billion liquidation preference, that is roughly $325 million a year in preferred dividends once a full year is reflected.
• A $20 billion at-the-market common stock program was established on February 2, 2026; no shares had been sold under it as of May 31, 2026.
• Buybacks effectively stopped: $93 million of stock repurchased in fiscal 2026, against $600 million in fiscal 2025 and $1.2 billion in fiscal 2024.

Two large commitments sit off the balance sheet entirely. Oracle discloses $260 billion of additional lease commitments, substantially all data-center related, expected to commence between the first quarter of fiscal 2027 and fiscal 2029 on terms of fifteen to nineteen years. Separately, after the year ended it entered $19 billion of unconditional purchase commitments for cloud infrastructure assets beginning in fiscal 2027, on five-year terms. Neither appears in the $129.5 billion debt figure or the lease maturity table.

What the $638 billion backlog does and does not tell you

Remaining performance obligations (RPO) are contracted revenues not yet recognized — signed commitments, including amounts not yet invoiced. Oracle's rose from $138 billion to $638 billion, which it attributes to "certain significant cloud contracts that were entered into during the period."

The timing disclosure is the part worth reading closely. Oracle expects to recognize approximately:

Only about an eighth converts within a year, and roughly two-thirds falls in years three through five. For scale, the near-term slice alone (~$77 billion) exceeds fiscal 2026's entire $67.4 billion of revenue — but the bulk of the backlog depends on capacity Oracle has not yet built and on customers honouring multi-year commitments.

Oracle is explicit about that dependency in its risk factors: if customers fail to perform, it "could be locked into multi-year commitments for excess data center space and related capital expenditures, as well as associated financings, without receiving corresponding revenue," and it notes that lease terms and pricing "typically do not align with the duration and pricing of customer contracts." It also states that "in certain OCI offerings, we are more concentrated among a number of large customers." No single customer reached 10% of total revenue in fiscal 2026, 2025 or 2024 — a useful boundary on the concentration, though one that says nothing about concentration within the backlog.

Fiscal 2027: what Oracle says, and how it reads

A 10-K does not carry revenue or earnings guidance, but Oracle makes several specific forward statements:

• Capital expenditures keep climbing. "We expect this upward trend to continue during fiscal 2027 and in the following fiscal years as we increase our existing data center capacity and establish data centers in new geographic locations."
• Cloud and software expenses keep climbing with it, "during fiscal 2027 and in the next few fiscal years."
• Cloud keeps taking revenue share from licence and support — "we expect these trends to continue."
• Amortization of intangibles falls to $731 million in fiscal 2027, from $1,671 million.
• Liquidity is stated as sufficient for "at least the next twelve months," with the note that Oracle "has flexibility in managing the timing of certain discretionary capital expenditures."

Read together, fiscal 2027 should bring revenue growth above fiscal 2026's 17%, as the near-term RPO slice converts, alongside continued pressure on the cloud and software segment margin — depreciation from $55.7 billion of fiscal 2026 spending lands in fiscal 2027 in full, the $260 billion of leases starts commencing, and the amortization tailwind that held consolidated margin flat this year shrinks by more than half. Interest expense also has further to rise: much of the $43.0 billion of notes was issued partway through fiscal 2026, so fiscal 2027 carries a full year of it.

The three things that would change the assessment, in order of importance: whether cloud infrastructure revenue growth holds anywhere near 77% as the comparison base doubles; whether free cash flow troughs in fiscal 2027 or keeps deepening; and whether the gap between the $638 billion backlog and the $129.5 billion of debt plus $260 billion of pending leases narrows through delivered revenue rather than through further borrowing. Until cloud infrastructure revenue grows faster than the cost base built to serve it, reported profit will keep depending on items below the operating line.

Source: Oracle Corporation Form 10-K for the fiscal year ended May 31, 2026, filed with the SEC on June 22, 2026 (CIK 0001341439, accession 0001193125-26-277521). All figures are as reported by the company under U.S. GAAP unless noted.