Oracle (NYSE: ORCL) shares are tumbling as investors react to reports questioning the company’s profitability in its artificial intelligence (AI) segment.
On Tuesday, the stock fell as much as 7% before paring some losses to trade about 5% lower at $277 by press time.
ORCLE one-week stock price chart. Source: FinboldAccording to internal documents cited by The Information, Oracle generated roughly $900 million in revenue from renting servers powered by Nvidia (NASDAQ: NVDA) chips during the three months ending in August.
However, the company posted only $125 million in gross profit, translating to a slim 14% margin. This level of profitability is lower than many traditional non-technology businesses and fell short of equity analysts’ expectations.
The report also revealed that while Oracle’s AI cloud sales nearly tripled over the past year, margins remained inconsistent, ranging from below 10% to slightly above 20%, with an average near 16%.
Compounding the issue, Oracle reportedly incurred significant losses from renting smaller quantities of both newer and older Nvidia chips.
When factoring in additional depreciation, profitability could fall by another seven percentage points. In one notable figure, Oracle was reported to have lost $100 million in the most recent quarter from renting out Nvidia’s latest Blackwell chips.
ORCL stock reverses gains
The sell-off marks a sharp reversal from recent highs. Oracle’s stock had surged in September after announcing a series of massive AI cloud deals, including a five-year, $300 billion contract with OpenAI.
The company also disclosed a contract backlog of $455 billion, up more than 350% year over year, and projected cloud infrastructure revenue could climb from $18 billion this fiscal year to $144 billion by 2030.
That optimism had positioned Oracle as a serious contender in the AI infrastructure race and helped drive the stock to record levels.
Featured image via Shutterstock
Source: https://finbold.com/why-oracle-stock-is-crashing-today/
