Oracle (ORCL.US) wins a ten-year software contract with the US Department of Defense, with a total value close to $7 billion

According to Zhitong Finance APP, the US Department of Defense announced on Thursday that it has signed an enterprise-level software agreement with software giant Oracle (ORCL.US), lasting up to 10 years with a total value of nearly $7 billion. Boosted by this news, Oracle's share price surged about 3% in after-hours trading.

This contract, called the "Enterprise Software Agreement," was negotiated by the US Department of the Navy and aims to consolidate the US Department of Defense's various departments, the US Coast Guard, and intelligence community's scattered on-premises software licenses into a single contract. The base term of the agreement is five years, with an optional five-year renewal. It covers perpetual and subscription-based software licenses, maintenance, and consulting services.

Kiersten Davis, Chief Information Officer of the US Department of Defense, stated in a press release: "By fundamentally changing how we procure Oracle's on-premises capabilities, we have saved taxpayers at least $441 million while being able to serve our warfighters quickly and efficiently." It is worth noting that the CIA was Oracle's very first client.

This agreement with Oracle is the latest move led by Davis to reduce the Department of Defense's redundant software expenses and implement enterprise-level unified procurement. In May this year, her office reached a similar five-year agreement worth $9.69 billion with Microsoft (MSFT.US), consolidating the military branches' and intelligence agencies' scattered Microsoft and other enterprise software licenses into a single contract, putting an end to years of fragmented procurement.

This major order also brings important endorsement of Oracle's government business. Oracle co-founder Larry Ellison maintains close ties with US President Trump; he donated $45 million to a nonprofit supporting Trump's 2024 campaign. During Trump’s second term, Ellison was among the first guests to visit the White House and announced the "Stargate" artificial intelligence (AI) data center project; Trump also supported Oracle’s acquisition of TikTok’s US business shares. In May this year, the US Department of Defense announced an agreement with Oracle and other tech companies for AI deployment on classified networks.

Despite winning a huge defense contract, Oracle still faces market pressure this year. Investors worry that the rise of AI could impact the growth prospects of traditional software companies, and Oracle's share price has fallen 38% year-to-date. To seize the AI computing market, the company is carrying tens of billions of dollars in debt to massively build AI data centers. Financially, Oracle’s quarterly report released in June showed its software revenue fell 2% year-on-year, but cloud revenue surged 47% year-on-year, boosted by providing AI computing power to customers such as OpenAI.