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Oracle stock fell 3% on Tuesday following a report that spotlighted challenges in the company’s AI cloud business powered by Nvidia chips. The report from The Information raised questions about the profitability of Oracle’s plans to supply Nvidia-powered cloud infrastructure to clients such as OpenAI.

According to internal documents cited in the report, Oracle’s Nvidia cloud business generated $900 million in sales in the three months ending in August but posted a gross margin of just 14% — far below the company’s overall margin of around 70%.

Profitability Challenges Amid AI Expansion

The thin margins reflect the high costs of Nvidia chips and aggressive pricing strategies Oracle is using to attract cloud clients. Analysts warn that while the company is emerging as a major player in the AI and cloud computing space, sustaining profitability could be a significant hurdle if hardware costs remain high.

Oracle has been rapidly transforming itself into a key provider of AI cloud services. In September 2025, the company reported a 359% year-over-year increase in its backlog of cloud contracts, which Oracle refers to as “remaining performance obligations.” These contracts underpin its ambitious forecast of $144 billion in cloud infrastructure revenue by 2030, compared with just over $10 billion expected in 2025.

The Stargate Project and AI Ambitions

A major driver of Oracle’s cloud expansion is its participation in the Stargate project in collaboration with OpenAI. The initiative involves opening five large-scale data centers equipped with Nvidia AI chips, enabling Oracle to offer high-performance AI compute capabilities to enterprise clients.

Despite the promise of future revenue, the company’s reliance on expensive hardware highlights the tension between growth and profitability. Analysts suggest that Oracle will need to carefully manage pricing and operational costs as AI workloads scale across these massive cloud centers.

Looking Ahead

Investors will be closely monitoring Oracle’s upcoming earnings reports for signs that the company can balance rapid expansion with margin improvement. With AI demand surging globally and Nvidia chips at the core of next-generation cloud services, Oracle’s approach to pricing, supply chain management, and client acquisition will be critical in determining long-term profitability.

While the current thin margins pose a near-term concern, Oracle’s position in AI cloud infrastructure and its massive contract backlog suggest the company remains strategically positioned to capitalize on the fast-growing artificial intelligence market.