Oracle Corporation's stock declined 5% on Tuesday following a report that questioned the company's strategy of spending billions of dollars to purchase NVIDIA chips and lease them to clients such as OpenAI as a cloud service provider.
According to internal documents cited in the report, Oracle's NVIDIA cloud business generated $900 million in sales during the three months ending in August, with a gross margin of only 14%. This figure is significantly lower than Oracle's overall gross margin of approximately 70%.
The report suggests that Oracle's recent transformation into a "major cloud services and artificial intelligence company" may face profitability challenges due to the high costs of NVIDIA chips and the company's aggressive pricing strategy for AI chip rental services.
In September, Oracle announced that its cloud contract backlog, which the company refers to as "remaining performance obligations," surged 359% within a year. The company also projected that its cloud infrastructure business revenue would reach $144 billion by 2030, representing substantial growth from slightly over $10 billion in 2025.
A significant portion of this projected revenue stems from Oracle's role in the "Stargate" project, where the enterprise technology provider is collaborating with OpenAI to establish five large data centers equipped with extensive NVIDIA artificial intelligence chips.
