Oracle Stock Drops 5% Amid Concerns Over Thin Cloud Margins from Nvidia Chip Rentals

Oracle stock dropped 5% on Tuesday after a report from The Information revealed that the company’s cloud business leveraging Nvidia chips is generating significantly thinner margins than its broader operations. The report, citing internal documents, found that Oracle’s Nvidia-focused cloud segment posted just 14% gross margins on $900 million in sales during the quarter ending in August—far below the company’s overall gross margin of approximately 70%. The findings raise concerns about the profitability of Oracle’s aggressive push into AI infrastructure, particularly as it invests heavily in acquiring billions of Nvidia chips to rent out to enterprise clients, including major AI players like OpenAI. The high cost of these chips, combined with competitive pricing pressure in the AI cloud market, is putting strain on margins. Despite the margin challenges, Oracle continues to report strong growth in demand. In September, the company announced that its backlog of cloud contracts—referred to as remaining performance obligations—had surged 359% year-over-year. Oracle also raised its long-term revenue forecast, projecting $144 billion in cloud infrastructure revenue by 2030, up from just over $10 billion in 2025. A significant portion of this projected growth is tied to the Stargate project, a major collaboration between Oracle and OpenAI. Under this initiative, Oracle is building five large-scale data centers equipped with Nvidia’s cutting-edge AI chips, designed to support the development and deployment of advanced AI models. The project underscores Oracle’s ambition to become a central player in the AI infrastructure space. While the company’s strategic vision remains ambitious, the margin data suggests that scaling its AI cloud offerings may come at a steep financial cost—challenging the sustainability of its current business model unless pricing or cost structures can be adjusted. Investors are now closely watching how Oracle balances rapid expansion with long-term profitability.