Oracle Sinks on Report Its Cloud Margins Are Lower Than Expected
Shares of Oracle tumbled after a report revealed that the software maker’s profit margin in its cloud computing business is lower than many on Wall Street had estimated.

- Profit Margins Are Lower Than Expected: Wall Street analysts were surprised to learn that the profit margin for Oracle's cloud computing business is lower than they had estimated.
- Revenue vs. Profit: During the three months that ended in August, Oracle (ORCL) generated approximately $900 million in revenue from renting servers powered by Nvidia (NVDA) chips. However, the gross profit generated from that high revenue was only about $125 million.
- Losing Money on Rentals: According to internal corporate documents, Oracle was sometimes losing "considerable" amounts of money when renting out smaller quantities of Nvidia chips, including both new and older graphics processing units (GPUs).
- The Cost of AI: This pressure on profits is due to the heavy spending required for Oracle to acquire chips and build out necessary data center capacity.
- Overall Margin Decline: This high spending has weighed down Oracle’s overall gross margin (a key measure of profitability). In its most recent report, the gross margin was 67.3%, which is the lowest it has been in over a year.
- Market Reaction: When this information was reported, Oracle's shares tumbled as much as 4%.
- High AI Demand Continues: Despite these profitability concerns, soaring demand for artificial intelligence (AI) computing has significantly boosted Oracle’s revenue growth.
- Huge Future Projections: Because of this demand, Oracle previously projected that revenue in its cloud-computing business will jump 700% in the next three fiscal years. This forecast had sent the stock up 36% on September 10.
- Major Deals: Oracle is heavily invested in supplying capacity, including signing a deal with ChatGPT operator OpenAI to provide 4.5 gigawatts’ worth of data center capacity. Oracle is also part of a group attempting to buy the US operations of social media platform TikTok.