Oracle expects AI infrastructure gross margin to reach 35%, alleviating Wall Street's profit concerns, with the stock price rising by as much as 5%

Wallstreetcn
2025.10.16 20:51
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Oracle illustrated at the annual investor conference in Las Vegas that a six-year AI infrastructure project with a total revenue of $60 billion could achieve a gross margin of 35%. Market confidence in the profitability of AI infrastructure business has strengthened, and Oracle's stock price once rose over 5%, before the gains retreated

Oracle Corporation disclosed for the first time the profit margin expectations for its large AI infrastructure projects, alleviating investors' concerns about the profitability of this key new business.

On October 16, Oracle illustrated the profit prospects of its AI infrastructure business with specific cases at its annual investor conference in Las Vegas. A six-year AI infrastructure project with total revenue of $60 billion could achieve a gross margin of 35%.

Previously, despite Oracle signing numerous AI data center development agreements with clients such as OpenAI, Meta, and Musk's xAI, which boosted the company's valuation, Wall Street had been skeptical about the profitability of such businesses. Wall Street mentioned last week that the gross margin for some of Oracle's AI cloud services was only 14%.

Anurag Rana, an analyst at Bloomberg Industry Research, stated:

The newly disclosed data helps to quell concerns about lower profitability.

Following this data disclosure, market confidence in the profitability of AI infrastructure businesses increased, with Oracle's stock price rising more than 5% at one point before retreating, while also boosting the stock price of industry peer CoreWeave.

Early Business Profit Margins Raise Questions

Oracle's cloud business, which has attracted significant attention, was reported last week to have disappointing profit margins, facing profitability pressure due to the rental of advanced chips from NVIDIA.

According to media reports, in the company's last fiscal quarter ending in August, Oracle's server rental recorded revenue of $900 million and a gross profit of $125 million, equating to a profit of $0.14 for every $1 in sales, or a gross margin of 14%.

This is lower than the gross margins of many non-tech retail companies and far below Oracle's overall gross margin of about 70% for its traditional software business.

The aforementioned documents indicate that in some cases, Oracle recorded "quite a bit" of losses due to small-batch rentals of both new and old versions of NVIDIA chips, for example, in the last fiscal quarter, it incurred nearly $100 million in losses from renting NVIDIA's new Blackwell architecture chips.

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