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Russian (RU) Oracle (ORCL) stock slid following a report that the company has slim profit margins on AI cloud computing compared to the rest of its business. AI bullishness has been key to Oracle stock's rally over the past 12 months.
Oracle collected roughly $900 million in revenue but only $125 million in gross profit from renting cloud-based servers powered by Nvidia (NVDA) chips during its August-ended quarter, according to a report from The Information, which cited internal documents. That translates to a roughly 14% gross profit margin, The Information noted, compared to roughly 70% margins for the rest of the business. The internal document show the "financial challenge" in renting servers with Nvidia chips, as the publication described.
Oracle declined to comment.
Shares of the software giant turned sharply lower following the report which published late morning. On the stock market today, Oracle stock was down nearly 4% at 280.05 in recent trades.
Oracle has placed a big bet on its ability to rent servers equipped with Nvidia chips to AI startups and other enterprises through its cloud infrastructure business. It has paid off for Oracle stock. Shares had rallied nearly 70% this year entering trading Tuesday.
But Oracle has pulled back by more than 20% from a record high of 345.72 that its stock reached on Sept. 10. Oracle stock surged that day after the company reported fiscal first-quarter earnings and revealed its backlog of cloud-related work had reached $455 billion in contracted revenue as of August, a 359% jump from a year earlier. A growing partnership with OpenAI is a major contributor to that growth. The startup signed a five-year deal with Oracle valued at $300 billion for cloud computing services, according to a Wall Street Journal report on Sept. 10.
Oracle stock fell below its 21-day moving average for the first time since its rally in early September.
Oracle Stock, AI Stocks Fall
The slide comes amid questions about how the company will fund the data center capacity required to fulfill that demand.
Oracle is hosting an analyst day next week as part of its "AI World" conference in Las Vegas.
Other AI stocks were moved by the report as well. Nvidia's roughly 2% gain for the day was cut down to a fractional overall increase. AI-focused "neocloud" providers CoreWeave (CRWV)and Nebius Group (NBIS) were down as well.
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