Oracle Margin Pressure, Modest Guidance Raise Leave Morgan Stanley Needing More Visibility

01:16 PM EDT, 09/11/2026 (MT Newswires) -- Oracle's (ORCL) fiscal first-quarter results showed surging cloud growth, but margin pressure and a "modest" earnings guidance raise left Morgan Stanley wanting more visibility on infrastructure buildout and profitability. Oracle reported strong fiscal first-quarter results late Thursday, driven by above-consensus cloud sales that were buoyed by infrastructure revenue growth of 121% year over year. Morgan Stanley said Friday the company's non-GAAP gross profit margin fell to 61% in the three months through August from 68.7% a year ago, missing the brokerage's and Wall Street's estimate of about 62%. "Our gross margin did decline as expected, driven by impacts from ramping up our data centers and the acceleration of infrastructure revenue," Chief Financial Officer Hilary Maxson said during Thursday's earnings call, according to a FactSet transcript. "However, this was offset in the quarter by lower operating costs and strong operating leverage tied to simplification and efficiency actions." Oracle expects gross margins to "flatten" over the next couple of years, Maxson told analysts. "We'd like to see more evidence of the progress towards gross margin stabilization, more visibility on where and when infrastructure capacity comes on stream and (ideally but less critically) an improving trend in apps to turn more constructive," Morgan Stanley said. Cloud application revenue missed Wall Street's estimates by 1% in the first quarter, the brokerage wrote. Oracle raised its fiscal 2027 adjusted earnings per share guidance to $8.10 from $8.05. Morgan Stanley described the upward revision as "modest." The brokerage reiterated its equal-weight rating on Oracle's stock, with a $210 price target. The company reported capital expenditure of $28.50 billion in the first quarter, resulting in negative free cash flow of $5.40 billion. "Our capex will not be linear throughout the year," Maxson said. "We continue to anticipate $90 billion to $95 billion in capex for the full year, with not more than $70 billion in net cash capex." Oracle's plan to convert nearly half of its $664 billion remaining performance obligations into revenue over the next 36 months without lifting the capex outlook is encouraging, Morgan Stanley added. Shares were down 0.9% in Friday trading. The stock has lost 22% this year. Amazon's (AMZN) second-quarter results showed in July that operating margin increased to 13.7% from 11.4% in the same quarter last year, while Alphabet (GOOG, GOOGL) expanded 2 percentage points to 34%. Microsoft (MSFT) reported that its fiscal fourth-quarter gross margin jumped to $60.48 billion from $52.43 billion in the prior-year period. Price: 151.89, Change: -1.05, Percent Change: -0.69