Oracle Reports Lower Margins on AI Cloud Business Using Nvidia Chips, Stock Dips

Oracle’s stock fell nearly 4% after reports indicated that its AI cloud computing services, particularly those using Nvidia chips, have significantly lower profit margins compared to the company’s broader operations. During the quarter ending in August, Oracle earned approximately $900 million in revenue from renting cloud servers with Nvidia GPUs but only generated $125 million in gross profit, representing a 14% margin versus about 70% in its other segments. Despite this, AI and cloud growth have been major drivers of Oracle’s stock performance, which had surged nearly 70% earlier in the year. The company has seen substantial demand, including a five-year, $300 billion cloud deal with OpenAI. Analysts, including Stifel’s Brad Reback and Guggenheim’s John DiFucci, maintain a positive outlook, noting that margins are expected to improve as the cloud infrastructure scales and that initial investments in AI server capacity may temporarily depress profits. Oracle will host an analyst day next week during its ‘AI World’ conference in Las Vegas, where further details on operating expenses and cloud margin improvements are anticipated. The report also affected other AI-focused stocks, with minor movements in Nvidia and declines in companies like CoreWeave and Nebius Group.