Oracle Faces Profitability Challenges Amid Nvidia Chip Costs

Abilene, Texas — The Stargate AI data center, a collaboration between OpenAI, Oracle, and SoftBank, is under construction in Abilene, Texas, and is supported by promotions from former President Donald Trump. This project aims to build infrastructure for artificial intelligence across the U.S.

On Tuesday, Oracle’s stock fell by 5% following a report that raised concerns about its plans to acquire billions of Nvidia chips. These chips are intended for rental to clients, including OpenAI, as a cloud provider.

The report revealed that Oracle achieved 14% gross margins on $900 million in sales from its Nvidia cloud business for the three months ending in August. This is significantly lower than Oracle’s overall gross margin, which stands at around 70%.

Experts suggest that Oracle’s transformation into a key player in cloud and artificial intelligence may confront profitability hurdles due to the high costs associated with Nvidia chips. Additionally, aggressive pricing on AI chip rentals further complicates this transition.

Earlier this month, Oracle announced a substantial backlog of cloud contracts, which it refers to as remaining performance obligations. The company has forecasted $144 billion in cloud infrastructure revenue by 2030, a dramatic increase from just over $10 billion expected in 2025.

A significant portion of this anticipated revenue stems from Oracle’s collaboration with OpenAI, specifically related to filling its infrastructure with Nvidia’s AI chips.