TLDR
- Oracle shares dropped up to 7% Tuesday after The Information reported the company’s Nvidia chip rental business has only 14% gross margins
- Oracle generated $900 million in Nvidia cloud server sales during the three months ending in August with just $125 million in gross profit
- The thin margins contrast sharply with Oracle’s typical 70% gross margin and are lower than many retail businesses
- Oracle’s AI cloud sales nearly tripled over the past year but gross margins fluctuated between under 10% and slightly over 20%
- The company is losing money on rentals of small quantities of both newer and older Nvidia chips
Oracle stock took a hit Tuesday, falling as much as 7% after new details emerged about the profitability of its cloud business. The drop came after The Information published a report showing Oracle’s margins on Nvidia chip rentals are much thinner than expected.

The report cited internal Oracle documents. These documents showed the company made $900 million from renting servers powered by Nvidia chips in the three months ending in August.
However, gross profit from those sales was only $125 million. That works out to a 14% gross margin.
This margin is far below Oracle’s usual performance. The company typically operates with a 70% gross margin across its business.
The 14% figure is also lower than many non-tech retail businesses. It falls short of what equity analysts had estimated for Oracle’s cloud operations.
Margins Fluctuate Across Different Services
The documents revealed that Oracle’s AI cloud server business nearly tripled in sales over the past year. But the margins have been inconsistent.
Gross profit margins bounced between less than 10% and slightly over 20% during this period. The average landed around 16%.
Oracle is actually losing money on certain services. The company takes losses when renting small quantities of Nvidia chips, regardless of whether they’re newer or older models.
The 14% gross margin figure accounts for several costs. These include labor, power, and other direct expenses of running Oracle data centers.
Some depreciation expenses for equipment are also included in that calculation. But there are additional depreciation costs not reflected in that number.
When those extra depreciation expenses are factored in, the margin drops another 7 percentage points. That brings the true margin down to just 7%.
Major Expansion Plans Raise Questions
Oracle has been positioning itself as a major player in AI infrastructure. In September, the company reported that its backlog of cloud contracts jumped 359% in one year.
The company forecast $144 billion in cloud infrastructure revenue by 2030. That’s up from just over $10 billion in 2025.
Much of this expected revenue ties to the Stargate project. Oracle is working with OpenAI on this initiative to open five massive data centers.
These facilities will be filled with AI chips from Nvidia. Oracle serves as the enterprise vendor for this partnership.
The company provides cloud services to clients like OpenAI. This involves renting out powerful computing resources needed for training and running AI models.
The high cost of Nvidia chips presents challenges. These chips are expensive to purchase and operate.
Oracle has priced its AI chip rentals competitively. But the new report suggests this pricing strategy may be squeezing profit margins.
The company’s stock closed down 3% on Tuesday after recovering from earlier lows. Shares had initially dropped 7% when trading began after the report’s publication.
Oracle generated approximately $900 million from its Nvidia-powered server rentals in the three-month period ending in August, with internal documents showing a gross profit of $125 million during that timeframe.
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