Oracle is struggling to achieve gross profit margins above 25% from renting out one- to two-year-old Nvidia server chips to artificial intelligence developers. These previously unpublished figures reveal a significant gap the company must bridge to reach the targets outlined by co-CEO Clay Magouyrk. On Thursday, he said they expect margins of 30% to 40% from the AI cloud business in the coming years. For example, Hopper chips, which have been on the market for two years, achieved a gross margin of only 26%. Similarly, the H200 model had a margin of 19%, accounting for about 20% of quarterly revenue.
In the most recent quarter, the company reported $900 million (approximately CZK 20.7 billion) in revenue from renting out Nvidia chips, but gross profit amounted to only $125 million (about CZK 2.875 billion), corresponding to a margin of 14%. These figures are significantly below Oracle's overall gross margin of 72% in fiscal year 2025. Such results underscore how the high cost of Nvidia chips weighs on profitability, especially when all depreciation is taken into account.
Revenue projections and the company's transformation
Oracle recently revised its cloud business revenue projection for fiscal year 2030 to a staggering $166 billion (approximately CZK 3.818 trillion), 15% higher than the estimate from the previous month. This increase signals that the company is transforming into a cloud services provider. According to internal data, the company plans to reduce the cost of chips purchased from Nvidia or raise the prices it charges customers such as OpenAI to rent them. Another projection calls for revenue of $144 billion (about CZK 3.312 trillion) by fiscal year 2030, which would represent dramatic growth from $57.4 billion (approximately CZK 1.32 trillion) in fiscal year 2025.
The company has signed a major cloud services contract that could generate more than $30 billion (around CZK 690 billion) annually starting in fiscal year 2028. This contract, possibly with OpenAI, could change the revenue dynamics if infrastructure utilization can be increased. Oracle is therefore betting that a higher volume of customers will spread fixed costs across a larger base, gradually improving margins.
Losses on new chips and competition
Internal figures show that Oracle is losing money on rentals of Nvidia's latest Blackwell chips, as well as on AMD chips released last year. Losses on Blackwell approached $100 million (about CZK 2.3 billion) in one quarter, dragging the overall GPU gross margin into the single digits when all depreciation was included. Older Nvidia chips also generated losses despite having been on the market longer.
Nvidia's strong pricing power makes the situation more difficult, as Oracle has so far been unable to achieve margins above 25% even on chips released within the past two years. Competitors such as Amazon and Microsoft have an advantage because they rely more heavily on CPUs or their own AI chips, which Oracle lacks. However, AMD's growing role as an alternative supplier could put pressure on Nvidia's prices and help Oracle diversify its chip sources.
Oracle expects that as the use of its cloud infrastructure increases, costs will be spread across higher revenue, which could result in margins of up to 35%, depending on the contracts. However, Wall Street remains skeptical about the company's ability to achieve these targets because the risk of declining margins as the cloud business expands remains high. The company is relying on negotiating better prices with Nvidia and attracting a larger volume of customers such as OpenAI to overcome its current losses.
Source: theinformation.com
