Key Stats for $ORCL Stock
- Price Change for $ORCL stock: -2.5%
- Current Share Price: $284
- 52-Week High: $345
- $ORCL Stock Price Target: $331
What Happened?
Oracle (ORCL) stock dropped nearly 3% on Tuesday after The Information published a report raising concerns about the profitability of Oracle’s AI cloud business.
The report cited internal documents showing Oracle earned just 14% gross margins on $900 million in Nvidia chip rental revenue during the three months ending in August.
That margin is dramatically lower than Oracle’s overall gross margin of around 70%. The gap matters because Oracle has been positioning itself as a major player in AI infrastructure through massive data center deals with companies like OpenAI.
According to the report, Oracle loses money on some of its smaller Nvidia chip rentals. The company is caught between the high costs of chips from Nvidia and the need for aggressive pricing to compete with cloud giants like Microsoft and Amazon.
This squeeze on margins could challenge Oracle’s ambitious growth plans in the AI space. The concerns arise despite Oracle’s recent enthusiasm for its cloud business.
Last month, ORCL stock surged 36% after the company forecast explosive growth in cloud infrastructure revenue. Oracle projected reaching $144 billion in annual cloud revenue by 2030, up from just over $10 billion in 2025.
Much of that forecasted growth ties back to the Stargate project with OpenAI. Oracle is helping build five massive data centers packed with Nvidia chips to power OpenAI’s AI models. The company also announced its backlog of cloud contracts jumped 359% year over year to $455 billion.
Oracle’s overall gross margin has already begun to show pressure from these investments. The company reported a 67.3% gross margin in its latest quarter, the lowest level in over a year.
See analysts’ growth forecasts and price targets for Oracle stock (It’s free!) >>>
What the Market Is Telling Us About ORCL Stock
The market’s negative reaction indicates that investors are concerned about whether Oracle can generate significant profits from its AI infrastructure initiative.
While revenue growth may look impressive on paper, profitability is equally important in the long run.
The low margins on Nvidia chip rentals suggest Oracle may be buying growth rather than earning it. Competing against established cloud providers like Microsoft Azure and Amazon Web Services is a costly endeavor.
Those companies have scale advantages that Oracle doesn’t yet have in cloud infrastructure.
However, the selloff might be overdone as Oracle is still early in ramping up its AI cloud business. Margins often start low when companies enter new markets with heavy upfront investment. As Oracle scales up and fills more data center capacity, margins should improve.
Oracle is also betting that its database software and deep relationships with enterprise customers give it an edge. Oracle’s plan to integrate OpenAI models directly into its databases could generate sticky, high-margin revenue streams in the long run.
For now, investors are questioning whether the $35 billion Oracle plans to spend on capital expenditures this fiscal year will actually deliver profitable returns. The drop in ORCL stock reflects those doubts, even as the company remains up over 50% for the year on AI enthusiasm.
The key question is whether Oracle’s AI infrastructure bet will look brilliant in a few years or turn into an expensive distraction from its profitable core business.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
