Oracle ORCL Stock Dives $20 on Weak Cloud Profits – AI Hype Meets Reality
As fresh information on Oracle's AI cloud profitability triggered a fresh sell-off and raised concerns about the sustainability of its...
Quick overview
- Oracle's stock rally in September has stalled due to concerns over the profitability of its AI cloud services.
- The company's gross profit margins from AI cloud revenue were reported at only 14%, significantly lower than analyst expectations.
- After reaching an all-time high of $345, Oracle's stock has dropped over $40 in a single session, settling around $271.44.
- Analysts caution that without improved earnings from AI initiatives, Oracle's stock may continue to face downward pressure.
As fresh information on Oracle’s AI cloud profitability triggered a fresh sell-off and raised concerns about the sustainability of its lofty valuations, the company’s spectacular September advance has stalled.
A Rally Cut Short
After a blockbuster run earlier in September that propelled Oracle’s stock (NYSE: ORCL) above $345, optimism around its AI-driven cloud infrastructure seemed unstoppable. Investors were encouraged by bullish growth forecasts and surging demand for AI-powered data-center services which has proved to be wrong.
However, that upward momentum proved fleeting. Since peaking on September 10, the stock has been drifting lower on profit-taking and fresh concerns about revenue quality. The slide accelerated this week after reports surfaced detailing razor-thin gross profit margins in Oracle’s AI cloud business.
ORCL Chart Daily – The 20 SMA Has Turned Into Resistance
On Tuesday, ORCL fell more than 5% to close at $271.44, marking one of its steepest single-day drops since early summer.
AI Cloud Margins Disappoint
According to internal documents, Oracle generated around $900 million in revenue from renting servers powered by Nvidia chips during the three months ending in August. However, gross profit stood at only $125 million, translating to a mere 14% gross margin.
This figure is far below the levels expected by many Wall Street analysts and trails even the margins of several non-tech retail businesses. The disclosure sparked alarm over whether Oracle’s AI expansion can be meaningfully profitable in the near term.
Further analysis in the report suggested that even as AI cloud sales nearly tripled year-over-year, gross profit margins averaged only 16%, burdened by high operational costs such as energy, labor, and data-center depreciation. Oracle was also said to be incurring losses on rentals of both newer and older Nvidia chips when sold in small quantities.
From Breakout to Breakdown
Oracle’s meteoric climb in early September was largely fueled by CEO Safra Catz’s upgraded cloud revenue guidance, which painted a rosy picture of accelerating AI-powered infrastructure demand. This bullish outlook propelled shares to an all-time high of $345.72, up nearly 37% from earlier levels.
But enthusiasm was short-lived. Profit-taking quickly set in, dragging the stock down by roughly $40 in just one session, and it soon settled near the $300 level. The revelation of weaker margins dealt another blow, extending the downward trend.
Technical analysts now see potential support around the July high of $260, with a further downside target near $235 if selling pressure persists.
Outlook: Growth Meets Reality
The latest sell-off underscores a broader concern: rapid growth in AI services does not automatically translate into robust profitability. While Oracle’s aggressive cloud expansion has captured market share and investor attention, the company faces the challenge of balancing infrastructure costs with sustainable margins.
Analysts warn that until Oracle demonstrates stronger earnings leverage from its AI initiatives, the stock may remain under pressure, with investors turning more cautious about paying a premium for future growth.
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