Oracle shares tumble on earnings. But there's a silver lining for our AI chip and power stocks

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Oracle shares tumble on earnings. But there's a silver lining for our AI chip and power stocks Published Thu, Jun 11 202612:51 PM EDTZev Fima@zevfima Oracle shareholders are taking it on the chin Thursday, as the company's plan to raise more money to fund the AI buildout is overshadowing better-than-expected quarterly results. But, from our vantage point as investors in chipmakers and other picks-and-shovels AI players, Oracle had plenty of good things to say about the demand for AI computing. Oracle beat expectations on the top and bottom line for the May quarter, while its remaining performance obligation — a measure of contracted revenues that have yet to be recognized — increased a whopping 363% year over year, to $638 billion. RPO is a key metric for companies selling long-term contracts because it helps investors better understand the demand profile not only in the quarter, but further into the future. Most of the increase in RPO was due to large-scale AI contracts, according to Oracle. The company has a $300 billion, five-year partnership with OpenAI for computing power. In addition to RPO indicating that demand is clearly surging for AI infrastructure and cloud services, co-CEO Clay Magouyrk said, "AI infrastructure makes the existing cloud infrastructure market look small. Everything we see shows this market size is trillions of dollars per year." Magouyrk went on to say that Oracle delivered over 1.2 gigawatts of compute to customers throughout the entirety of its fiscal 2026, which ended in May. Now, the "pace of delivery continues to accelerate, with our FY 2027 Q1 delivery approaching 1 gigawatt, nearly the same capacity as we've delivered in the previous four quarters combined," he said. ORCL 1Y mountain Oracle's stock performance over the past 12 months. While the Club doesn't own Oracle, we love to sift through the calls of those our companies compete with to get a better understanding of supply and demand dynamics at the industry level. Oracle's commentary bodes well for the chipmakers — we own four in Nvidia , Broadcom , Intel and Arm Holdings , as well as semiconductor material supplier Qnity and optical giant Corning . Oracle is a big buyer of Nvidia's graphics processing units (GPUs), in particular. It is also a good sign for our power plays in gas turbine maker GE Vernova and electrical equipment supplier Eaton . It clearly indicates that the demand for compute and the electricity needed to run it is, at least for now, insatiable. That may not make investors forget about the jaw dropping amounts of money being invested to meet that demand, but it does serve as a reminder that this money is not being spent on hopes and dreams. It's being spent because the demand is already. Put another way, this isn't an "if you build it, they will come" situation. Rather, it is, "they are already here, so the faster you build it, the faster you sell it." As for obsolescence — a bear case used against Nvidia and its customers — that too seems to be in the bulls favor. While the chips from prior generations may not be ideal for the latest cutting-edge workloads or running the current frontier AI models, they are nonetheless more than adequate for many applications that enterprises need to run day to day — something Oracle showed. "In Q4, 35,000 GPUs from 59 separate customers were up for renewal," Magouyrk said on the earnings call. 49% of those customers renewed for 92% of those GPUs. That doesn't mean, though, that 8% of those GPUs are idle. Most of those GPUs themselves were subsequently sold to other customers in the same quarter. Our global GPU utilization rate is 97.5%." The notion that these chips are still seeing demand years after their initial release is encouraging. However, it doesn't do much to alleviate concerns regarding the return on the current level of capital expenditures needed to meet demand. That debate is still an overhang on Oracle and the hyperscalers like Club names Microsoft , Alphabet , Amazon and especially Meta Platforms . Given that the real returns won't come until well after the money is spent, it is unlikely to be resolved anytime soon. We have seen some encouraging signs of returns, both in terms of revenue growth and opportunities to increase operating efficiencies, but not to the level that justifies the spend — at least not yet. Additionally, a report from the Wall Street Journal saying OpenAI is looking into cutting the prices it charges customers — as a means to capture market share versus rival Anthropic — doesn't help the bull case either. OpenAI, which already operates at a loss, is a material source of revenue for Oracle and many others in the AI infrastructure space. The demand is a good sign, but only if the revenue linked to that massive RPO growth actually materi