Oracle's AI Profits Look Slim—Are NBIS and CRWV at Risk Too?

Core Insights - Neo-cloud stocks, particularly companies like Nebius and CoreWeave, have shown remarkable performance in 2025, with share prices increasing by approximately 362% and 235% respectively [1] - Oracle, while not a typical neo-cloud company, has seen its stock rise around 81% due to its focus on AI infrastructure, which is crucial for the neo-cloud and AI cloud computing discussions [2][3] Oracle's Financial Performance - Oracle reported $900 million in sales from renting AI servers in the three months ending August, but only achieved a gross profit of $125 million, resulting in a gross margin of 14%, significantly lower than its overall gross profit margin of 72% for fiscal year 2025 [4] - The company's overall gross margin decreased by nearly 340 basis points in fiscal Q1 2026, and it incurred a loss of $100 million from renting NVIDIA's latest chips [4][5] Growth Potential - Despite lower margins, Oracle's cloud business is projected to grow to $144 billion by fiscal year 2030, with total revenue of $57.4 billion in FY 2025, indicating potential for massive profit increases even with diluted margins [5] - As Oracle's cloud business expands, it is expected that cloud margins will improve as costs are spread over a larger revenue base, which could mitigate margin dilution [6] Neo-Cloud Companies' Performance - Nebius and CoreWeave have experienced significant revenue growth, with Nebius growing revenues by 625% and CoreWeave by 207% last quarter, although both companies are currently unprofitable [7][8] - Nebius generated $105 million in revenue but reported a $111 million operational loss, while CoreWeave had revenues of $1.2 billion but posted a net loss of $290 million [7][8] Market Sentiment and Future Outlook - The market currently rewards growth in Oracle and neo-cloud stocks, with profitability becoming a more pressing concern over time [12] - Oracle shares showed resilience, only falling around 2.5% after a negative report, and have since recovered, indicating a long-term investor confidence in the company's AI strategy [13]