Oracle’s strong year of growth in cloud services hit a setback this week as fresh data revealed weaker-than-expected profit margins in its AI infrastructure division. The revelation triggered an immediate reaction on Wall Street, with shares sliding more than seven percent before clawing back modest gains later in the day.
According to company figures seen by Bloomberg, Oracle generated roughly $900 million in revenue from renting servers equipped with Nvidia chips during the quarter ending in August. Yet the operation brought in only about $125 million in gross profit, signaling tighter margins than investors had anticipated. The report also suggested that Oracle took financial hits when leasing smaller batches of older Nvidia processors, though the company declined to comment on the matter.
The timing of the disclosure complicates Oracle’s broader narrative of rapid expansion. The software giant has ridden the global wave of AI demand to a 70 percent stock rise this year, thanks largely to its cloud business. In September, executives projected a 700 percent increase in cloud computing revenue over the next three fiscal years. Still, analysts now warn that the massive costs tied to this expansion could weigh heavily on profitability.
Market insiders think that Oracle could have to borrow as much as $100 billion to be able to cover all its liabilities related to the eye popping $300 billion deal with OpenAI. The company revealed the 4.5-gigawatt data center capacity agreement in September, highlighting it as one of the largest projects of its kind.
By August, Oracle long term debt was shown on the company’s balance sheet to be $82.2 billion, with $18 billion newly issued to support the infrastructure development. Analysts estimate that the company holds $10 billion in cash reserves while carrying $9 billion in debt set to mature within a year.
Then comes the hard part for Oracle, the next 18 months might be the biggest challenge. It will be a matter of if and how the company will be able to transform huge infrastructure spending into sustainable profits before the anxiety of debts and the market’s mistrust begin to affect Oracle further.
