Quick overview

---

Oracle’s stock price fell by 3% on Tuesday following a report from The Information that raised doubts about the company’s plans to purchase billions of Nvidia chips to lease them as a cloud provider to clients such as OpenAI.

Oracle’s Nvidia cloud business generated $900 million in sales during the three months ending in August, with a gross margin of 14%. In contrast, Oracle’s overall gross margin is approximately 70%, indicating a significant disparity.

The report suggests that Oracle’s recent transformation into a major player in the cloud and AI sectors may face challenges with profitability, primarily due to the high cost of Nvidia chips and the competitive pricing for leasing these AI chips.

Additionally, Oracle’s heavy reliance on a limited number of clients, like OpenAI, presents a concentration risk. If utilization drops below 98–99 percent or if rental rates decrease, the high cost of Nvidia chips could further erode margins.

Despite a 70% increase in stock value this year (from $167.84 in October 2024 to $285.139 today), indicating significant market expectations, any further negative news could lead to additional declines. While Oracle’s growth potential and strategic positioning in AI may offset short-term margin concerns, analysts predict the stock could experience a 20% pullback.

ORCL shares are priced at $285.139, close to their year-to-date high but still below the peak of $345.72.

Oracle reported in September that it had a 359 percent increase in its backlog of cloud contracts, which it referred to as remaining performance obligations, in just one year. Revenue from cloud infrastructure was predicted to increase from just over $10 billion in 2025 to $144 billion in 2030.

Oracle’s involvement in the Stargate project, in which the enterprise vendor is collaborating with OpenAI to open five enormous data centers equipped with Nvidia AI chips, accounts for a large portion of that projected revenue.