Oracle and Adobe both reported after Thursday’s close, and both beat. Oracle earned $1.92 non-GAAP against roughly $1.74 expected, $1.56 GAAP, on revenue up 30%. Adobe earned $6.13 non-GAAP against about $6.08 expected, $4.62 GAAP, on revenue up 13%, raised its full-year targets and said AI-first recurring revenue grew more than 150%. Consensus differs a little by feed.
As of 7:30am in New York on Friday, before the open, Oracle was indicated about 6% higher and Adobe about 4% lower.
Plenty went into that split. Oracle beat on earnings, on backlog and on a cash burn smaller than feared. Adobe carries a recurring-revenue deceleration, a freemium transition, an AI-competition overhang and a chief executive handover. What follows isn’t a claim about which moved the price, but an argument that the most durable difference between the 2 sits on the cash flow statement.
Key Takeaways
Oracle spent $28.5 billion on capital projects against $19.3 billion of revenue, and free cash flow was negative $5.4 billion. Adobe spent $85 million and generated $2.4 billion.
Of Oracle’s record $23.1 billion of operating cash flow, $15.4 billion was deferred revenue, and $11.4 billion of that is prepayment the filing describes as carrying a significant financing component.
Oracle’s gross margin on cloud and software fell 936 basis points. Its operating margin rose 612, helped by cutting sales and research spending.
Adobe guided fiscal 2026 ending recurring revenue growth to 10.2%, below the 11.2% it just reported. It fell 4% on a quarterly revenue guide 0.4% light.
Prices are the Thursday September 10 close, the last completed session, hours before both sets of results. Friday is pre-open as this is written.
The Same Week, Opposite Capital Models
Oracle spent more on capital projects during the quarter than it took in revenue. Revenue was $19.3 billion, capital spending $28.5 billion, 147% of revenue. Free cash flow was negative $5.4 billion in the quarter, after Oracle burned $23.7 billion across fiscal 2026.
Adobe was almost asset-light by comparison. Revenue was $6.76 billion, capital spending $85 million, 1.3% of revenue. Free cash flow was $2.4 billion and it returned $2.2 billion through buybacks, 92% of it.
The financing lines complete the picture. Oracle sold $19.9 billion of stock through an at-the-market program, repaid $4.2 billion of debt, and its diluted share count rose from 2,909 million to 3,000 million. Adobe repurchased about 9.5 million shares.
One company is issuing equity to fund a capital buildout. The other is returning almost all of its quarterly free cash flow through buybacks.
Where Oracle’s Record Cash Came From
Operating cash flow of $23.1 billion, up 184%, was the headline number. It deserves reading closely.
$11.4 billion of it sits on a line that didn’t exist a year ago: “increase in deferred revenues from customer prepayments with significant financing component”. That phrase is precise. Economically, part of the arrangement functions as customer financing: Oracle receives cash well before it delivers the capacity, and the standard requires it to account for the time value of that money.
Another $4.0 billion came from other deferred revenue. Together, $15.4 billion, or 66% of operating cash flow, came from increases in deferred revenue. Excluding that increase, operating cash flow was $7.7 billion, against $28.5 billion of spending.
This isn’t a criticism of the model. Being paid in advance by counterparties of that size is a real advantage. As of the June quarter Oracle put the prepaid and customer-supplied hardware portion of its large AI contracts at $75 billion, a figure it didn’t update this time. It guides to $90 billion to $95 billion of reported capital spending this year against net cash spending of no more than $70 billion, a gap of $20 billion to $25 billion it attributes to customer prepayments and financing arrangements.
But it does change what the cash flow statement means. A record operating cash number that is 66% a build in deferred revenue measures demand and payment terms as much as profit.
The Margin Nobody Mentioned
Oracle’s operating margin expanded from 28.7% to 34.8%, which sounds like scale arriving. Underneath, the opposite happened.
Cloud and software revenue rose 33% to $17.2 billion. The cost of delivering it rose 77% to $6.4 billion. Gross margin on cloud and software fell from 72.1% to 62.7%, a 936 basis point decline, consistent with a mix shift toward infrastructure as software revenue declines. Software revenue itself fell 3%.
So where did the expansion come from? Sales and marketing fell $252 million, research and development $90 million, amortization $218 million and restructuring $321 million: $881 million across 4 lines, 36% of the entire increase in operating income.
Research and development went from 16.7% of revenue to 12.4%, sales and marketing from 13.8% to 9.4%, in the year Oracle remade itself into an infrastructure company selling AI compute. That may be efficiency. It’s worth watching whether it’s durable.
The depreciation question sits behind it. Property and equipment went from $100.0 billion to $127.8 billion in 3 months, while depreciation, though it more than doubled from a year ago, was still $3.2 billion. Much of that new asset base hasn’t reached the income statement. Capital spending doesn’t hit operating profit the day it’s incurred; depreciation begins as assets are placed in service, then runs for years.
What Oracle Actually Delivered
The demand isn’t in doubt, and it’s worth stating plainly because the rest of this piece is skeptical.
Remaining performance obligations reached $664 billion against a revenue guide of at least $90 billion. Oracle booked more than $30 billion of new AI cloud contracts, delivered 850 megawatts of capacity and more than 300,000 GPUs, almost triple the previous quarter. Cloud infrastructure revenue grew 121% to $7.4 billion.
The sequential additions are lumpy rather than linear. Oracle’s releases put remaining obligations at $523 billion after November, $553 billion after February, $638 billion after May and $664 billion now, so the quarterly additions run $68 billion, $30 billion, $85 billion, $26 billion.
This quarter’s $26 billion is in line with February’s $30 billion, and May’s $85 billion was the outlier. It’s also a net figure: obligations fall as revenue is recognized against them, which is why Oracle can sign more than $30 billion of new contracts and still show a $26 billion increase. Worth watching, not yet a trend.
Adobe’s Problem Is Not This Quarter
Adobe’s quarter was fine. Revenue beat the $6.69 billion expected, non-GAAP earnings beat about $6.08, subscription revenue grew 14%, the business and consumer group 16%, and the full-year targets went up.
2 numbers best capture the concern.
The first is the fourth-quarter revenue guide of $6.80 billion to $6.85 billion, a midpoint 0.4% below consensus. A rounding error in most contexts, a 4% move here.
The second matters more. Annualized recurring revenue ended the quarter at $27.50 billion, up 11.2%, and the company guided full-year ending growth to 10.2%. In a subscription business the recurring base leads reported revenue, so reporting 13% growth while guiding that base to 10.2% suggests some of today’s growth is the echo of a faster-growing past. That gap, not the guide, is the argument.
Set against that, Adobe converts 97% of operating cash flow into free cash flow and trades at 10.2 times the fiscal 2026 earnings it has one quarter left to finish. Oracle trades at 18.9 times a fiscal 2027 guide with 3 quarters still to run, so the horizons aren’t the same and the gap is wider than it looks.
The market isn’t confused about which is cheaper. It’s judging which still has a future, and it’s judged the whole category. Measured from their own record closes, Adobe is 64% below its 2021 peak, Intuit 61% below its 2025 peak, ServiceNow 44% and Salesforce about a third. This is not a verdict on Adobe.
The Case Against Me
The bear case on Oracle assumes the capital cycle disappoints, and there’s no evidence of that yet. Contracts are signed faster than capacity can be built, customers are prepaying at a scale that materially reduces Oracle’s external funding requirement, and Oracle repaid debt rather than adding it. Net debt is $88.3 billion against $303 billion of assets. Equity funding at these prices is dilutive, but it’s also the conservative choice.
And the bull case on Adobe is that a business growing 13%, with a billion monthly users and 92% of free cash flow going to buybacks, is priced as though generative AI has already taken it, when the evidence is a 1 point deceleration in recurring revenue. Its non-GAAP operating margin was 43.9% and its GAAP operating margin 34.8%. Adobe’s 34.8% GAAP operating margin was the same as Oracle’s, even though Oracle spent roughly 117 times as much capital per dollar of revenue this quarter.
Both could ultimately work. But today’s valuations imply radically different judgments about where the economics of this capital cycle end up.
Bottom Line
Oracle closed at a record $328.33 on September 10, 2025, the session after it first revealed a $455 billion backlog. At Thursday’s close, exactly one year later, it was 53.4% below that peak. Over roughly the same period the backlog grew another 46%, to $664 billion, the capacity is arriving and revenue is growing 30%. The market has spent that year deciding the terms of the deal matter as much as the size.
The terms are now visible. Oracle is funding an infrastructure business with customer prepayments carrying a financing component and with new shares, while the margin on what it delivers compresses and the reported margin rises anyway, helped materially by lower sales, research, amortization and restructuring expense. Adobe is funding buybacks with its own cash while the recurring base that drives its revenue slows by a point a year.
One of those is a growth company taking financing risk. The other is a cash machine taking terminal risk. The market paid 19 times for the first and 10 times for the second, which is a coherent view. It is not an obviously correct one.
This is research and commentary, not personal investment advice. Levels are illustrative; size positions to your own risk tolerance and time horizon. The author may hold positions in names discussed.