Oracle Pentagon contract covers up to $7 billion of software over 10 years

Oracle signed a Pentagon contract worth up to nearly $7 billion over 10 years to provide on-premises software across major U.S. defense and security agencies, the Department of Defense said Thursday. Oracle shares rose about 3% in extended trading after the announcement, while the stock remains down 38% this year amid investor concern over software growth and the company’s AI data center spending.

The agreement covers Oracle software used in on-premises data centers by military branches, the U.S. intelligence community and the Coast Guard, according to the Defense Department statement. On-premises software is run in an organization’s own data centers rather than through a public cloud, giving the customer direct control over infrastructure, deployment and access.

Kirsten Davies, the Defense Department’s chief information officer, said in the department’s release that the procurement approach would save taxpayers at least $441 million by changing how the agency buys Oracle capabilities for its own facilities.

What is the Oracle Pentagon contract?

The contract is a decade-long arrangement under which Oracle will supply software for government-operated data centers serving U.S. defense, intelligence and maritime security users. Its ceiling value is almost $7 billion, meaning spending can reach that amount over the life of the deal if the government uses the full scope of the contract.

The award extends a long relationship between Oracle and U.S. government users. The Central Intelligence Agency was Oracle’s first customer, according to the company history cited in the announcement.

The deal also arrives at a point when Oracle is trying to persuade investors that its older software franchise and newer AI infrastructure business can both support growth. Oracle’s database software is widely used by large companies, but the company reported in June that quarterly software revenue fell 2% from a year earlier.

Cloud revenue rose 47% in the same period, according to Oracle’s June report, as the company expanded its role in supplying computing capacity for artificial intelligence customers including OpenAI. That buildout has required large capital commitments, and CNBC has reported that investors have focused on Oracle’s rising debt as it funds AI data centers.

The Pentagon has also been expanding AI-related work with large technology companies. In May, the Defense Department announced agreements with Oracle and other technology firms for AI deployments on classified networks.

Oracle co-founder Larry Ellison has remained visible in Washington during President Donald Trump’s second term. Ellison was among the first business leaders to appear at the White House after Trump returned to office, joining an announcement of Stargate artificial intelligence data center plans in the United States alongside SoftBank’s Masayoshi Son and OpenAI’s Sam Altman.

The Wall Street Journal has reported that Ellison contributed $45 million to a nonprofit supporting Trump’s 2024 presidential campaign. Trump has also backed Oracle taking a stake in TikTok’s U.S. business, according to prior reporting cited by CNBC.

The new software award comes as the Defense Department faces heavy operating demands. Defense Secretary Pete Hegseth estimated earlier this week that the war in Iran, which began in February, has cost the United States $37.5 billion, according to the Associated Press.

This story draws on original reporting from CNBC.