Oracle shares fall on report the company is struggling to make money renting out Nvidia chips

Core Insights - Oracle's shares recently dipped by approximately 5% due to concerns over its cloud business's gross profit margins being lower than analysts' expectations [1][2] - The profitability of Oracle's AI cloud expansions is under scrutiny, raising questions about sustainability and investor expectations [2][4] - The market is experiencing skepticism regarding excessive spending and speculation in the tech sector, with Oracle's situation exemplifying these concerns [4][10] Financial Performance - Internal documents indicate that Oracle's fast-growing cloud business has had razor-thin gross profit margins over the past year, which could impact future profitability [2][8] - Oracle's stock has seen a significant increase of 120% over the last six months, but it is now trading at a forward earnings multiple of around 40 times [17][20] - The stock's valuation is projected to decrease to 24 times earnings over the next two years, raising questions about the sustainability of its current financial trajectory [20] Market Dynamics - The current market environment is being compared to the late 1990s, with concerns about a potential bubble in the tech sector, particularly around AI investments [13][17] - Oracle's reliance on debt to finance its data centers and cloud services is a point of concern, especially as it contrasts with the free cash flow that previously supported market optimism [10][24] - The appetite for investment in Oracle and similar companies remains strong, despite the high levels of leverage involved [24][25] Competitive Landscape - Oracle's position in the market is being compared to that of competitors like Google and Amazon, suggesting that it may not be as well-positioned to handle the financial dynamics of the current environment [11][12] - The circular revenue model involving Oracle, Nvidia, and other players raises questions about the overall profitability and sustainability of these investments [13][14][16] - Upcoming events, such as Oracle's analyst day, are expected to address concerns regarding margins and profitability, which could influence investor sentiment [22][23]