Oracle stock slips 5% on report company is seeing thin cloud margins from Nvidia chips

Oracle's stock experienced a notable decline of 5% on Tuesday following a concerning report from The Information. This report questioned the tech giant's strategy to invest billions in Nvidia chips for its cloud services, particularly for high-profile clients like OpenAI. According to the report, Oracle's Nvidia cloud business generated only 14% gross margins on $900 million in sales for the three-month period ending in August. This figure starkly contrasts with the company's overall gross margin, which hovers around 70%. The findings suggest that Oracle's ambitious transition into a leading player in the cloud and artificial intelligence sectors may face significant challenges regarding profitability due to the high costs associated with Nvidia chips. Compounding the issue, aggressive pricing strategies for AI chip rentals are further squeezing margins. Despite these challenges, Oracle reported a dramatic increase of 359% in its backlog of cloud contracts, also referred to as remaining performance obligations, over the past year. The company is projecting a substantial rise in cloud infrastructure revenue, forecasting $144 billion by 2030, a significant increase from just over $10 billion anticipated in 2025. A considerable portion of this expected revenue is linked to Oracle's involvement in the Stargate project, where it collaborates with OpenAI to establish five large data centers packed with Nvidia AI chips.