Oracle's Earnings Prove That AI Infrastructure Is Eating Enterprise Software
Today's Oracle earnings shows that infrastructure is bigger than software, while Oracle software business also grows
After investing close to $100 Billion in AI infrastructure, today Oracle shocked analysts and announced that the company’s AI infrastructure business grew by 84% to $4.9 Billion and its enterprise software business only grew by 13% to reach $4 billion.
In other words, Oracle is proving that software applications “built by AI” are now growing at 5-times the revenue from traditional software licensing. Oracle’s stock jumped up at the announcement. And Oracle’s infrastructure “licensing” is now bigger than its enterprise applications business.
“Thank God we have these coding tools now that allow us to build a comprehensive set of software, agent-based software, to implement, to automate a complete ecosystem like healthcare or financial services,” Larry Ellison, Oracle’s co-founder, technology chief and executive chairman, said on a conference call with analysts. “That’s what we’re doing at Oracle. That’s why we think we’re a disruptor. That’s why we think the SaaS apocalypse applies to others but not to us.”
Code Generation Is Paying Off
“AI models for generating computer code have become so efficient that we have been restructuring our product development teams into smaller, more agile and productive groups,” Oracle said in the statement. “This new AI Code Generation technology is enabling us to build more software in less time with fewer people. Oracle is now building more SaaS applications for more industries at a lower cost.”
Advanced Agents in Existing Apps
Oracle noted that more than 1,000 AI agents are now embedded into Oracle apps. And the company is building hierarchical agents, workflow agents, and agentic patterns. In fact the Oracle AI Agent Studio looks sophisticated enough to build entire new applications (Larry Ellison discussed this in the earnings call).
This is quite bullish for Oracle as well because it lets IT departments and the large Oracle community build even more internal and external apps on Oracle.
Financials Are Strong
What This Means
Oracle is a well run, ruthless execution machine. The company cited almost a dozen large companies who moved from Workday and SAP to Oracle and firmly believes that enterprise applications remain core to the company.
The question it raises is whether Workday, SAP, Salesforce, and other enterprise software companies should get into the infrastructure business? It’s quite a different business, with margins around 32% (Oracle’s numbers), but it’s where this industry is going.
This week Jensen Huang pointed out that the new model for software is moving value and intelligence down in the stack. While applications are the big value provider, they are now created in near real-time by AI models. So a “software company” at scale really is an AI infrastructure company.
As I mentioned a few months ago, Larry Ellison understands this, and Oracle is proving this trend. And with AI Agent Studio, Oracle can grow its enterprise application business as well as participate in the massive market for AI compute and inference infrastructure.
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