Oracle Shares Drop After Report Reveals Thin Margins in AI Cloud Business
Oracle (NYSE: ORCL) shares fell as much as 7% on Tuesday after a report from The Information revealed that the company’s AI cloud operations are running on very slim profit margins, raising concerns about the long-term profitability of its aggressive AI expansion strategy.
Citing internal company documents, the report said Oracle earned about $900 million from server rentals powered by Nvidia (NASDAQ: NVDA) chips during the three months ending in August. However, the company’s gross profit was just $125 million, reflecting a 14% gross margin — far below industry expectations and even lower than many non-tech retail businesses.
The documents also indicated that while Oracle’s AI cloud sales nearly tripled year-over-year, its gross profit margins fluctuated between below 10% and slightly above 20%, averaging roughly 16% overall. Additionally, the report claimed that Oracle is losing significant amounts on small-scale rentals of both new and older Nvidia GPU models.
The 14% gross margin figure includes costs for labor, electricity, and data center operations, as well as partial equipment depreciation. However, if full depreciation expenses are factored in, the margin would reportedly drop by another seven percentage points, further highlighting the financial strain on Oracle’s AI infrastructure efforts.
