Oracle Stock Slips on Report Company Is Seeing Thin Cloud Margins from Nvidia Chips

Oracle shares once tumbled more than 7% after a report that the software maker’s profit margin in its cloud computing business is lower than many on Wall Street have been estimating. The shares eventually closed off its lows, down 2.5% to $284.24 a share.

Earlier on Tuesday, The Information cited internal documents from the IT giant that showed its fast-growing cloud business has thin gross profit margins in the past year or so, lower than what many equity analysts have forecast. In the three months ended August, Oracle recorded about $900M in revenue from rentals of servers powered by Nvidia chips and saw a gross profit of $125M — equal to 14 cents for every $1 of sales, the report noted, citing the documents.

In some cases, Oracle was losing “considerable” amounts of money on its rentals of smaller quantities of Nvidia chips, including both new and old graphics processing units, according to the report.

Oracle shares have jumped around 70% this year as soaring demand for artificial intelligence computing has boosted the company’s revenue growth. Last month, Oracle projected that revenue in its cloud-computing business will jump 700% in the next three fiscal years, sending the stock up 36% on Sept. 10.

In September, Oracle said that its backlog of cloud contracts, which it called remaining performance obligations, had jumped 359% in a year. It forecasted $144 billion in cloud infrastructure revenue in 2030, up from just over $10 billion in 2025.

Much of that forecasted revenue is from Oracle’s role in the Stargate project, in which the enterprise vendor is working with OpenAI to open five massive data centers filled with AI chips from Nvidia.

The supposed difficulties that Oracle may be having generative revenue from renting Nvidia's GPUs are “off base,” Fox Business reported.

Nvidia CEO Jensen Huang on Tuesday brushed off a media report that said Oracle is seeing thin margins on its business of renting out Nvidia chips to customers.

Oracle is “going to do incredibly well,” Huang said in an interview with Jim Cramer at the CNBC Investing Club’s Monthly Meeting, which was held Tuesday afternoon at the New York Stock Exchange.

Huang suggested that short-term margin pressure wouldn’t be out of the question with new chips. Nvidia’s market-leading AI chips are known as graphics processing units, or GPUs. “When you first ramp up a new technology, there’s every possibility that you might not make money in the beginning, but over the life of the system, they’ll be wonderfully profitable,” Huang said.

The Nvidia CEO also underscored the operational complexity of operating large-scale data centers for AI computing. “What Oracle does with Nvidia’s systems is not easy,” Huang continued. “These things are giant supercomputers. You’ve got to build infrastructure, you’ve got land, it’s got power, it’s got cooling, and then you have to operate these things.”