Oracle Stock Slides On Report Its Cloud Business Is Seeing Lower Margins On Nvidia Chips

Core Insights - Oracle's stock experienced a decline due to reports indicating slim profit margins on AI cloud computing compared to its overall business [1][3] - The company generated approximately $900 million in revenue but only $125 million in gross profit from renting Nvidia chip-equipped cloud servers, resulting in a gross profit margin of about 14% [2] - This margin is significantly lower than the roughly 70% margins for the rest of Oracle's business, highlighting a "financial challenge" in this segment [2] Financial Performance - Oracle's stock fell nearly 4% to $280.05 following the report, marking a nearly 20% pullback from its record high of $345.72 reached on September 10 [3][4] - The company reported a backlog of cloud-related work valued at $455 billion, a 359% increase year-over-year, largely driven by a partnership with OpenAI [4] Market Reactions - The decline in Oracle's stock also affected other AI-related stocks, with Nvidia's gains being reduced and other AI-focused companies experiencing declines [6] - Analysts from Wall Street defended Oracle, with expectations that gross margins could improve as the OCI segment scales [7][8] Analyst Perspectives - Stifel analyst Brad Reback projected gross margins of around 16% for Oracle's cloud business, suggesting potential for improvement as the segment grows [7][8] - Guggenheim analyst John DiFucci noted a lag in revenue recognition for cloud infrastructure, indicating that initial margins may be lower but could reach at least 25% over the life of AI training deals [9] - Both analysts maintain a "buy" rating on Oracle stock [10]