Cloud costs put pressure on Oracle shares

"According to internal company documents, the software company generated approximately $900 million in revenue from the rental of servers with Nvidia chips in the quarter ending in August. However, gross profit was only about $125 million. Oracle's shares fell by more than 7% during the trading day before recovering some of their losses. Nvidia also fell slightly on the news. In some cases, according to Bloomberg, Oracle may have suffered significant losses on the rental of smaller numbers of Nvidia chips, including both new and older graphics processors."

"According to calculations by KeyBanc Capital Markets, Oracle may need to borrow around $100 billion in the coming years to fulfill its agreement with OpenAI. The money is needed to build new data centers and infrastructure required for the $300 billion mega-contract that Oracle and OpenAI announced in September. The deal, with a capacity of 4.5 gigawatts, is one of the largest cloud contracts ever and initially caused a sharp rise in the stock price."

"The disappointing margins come at a time when Oracle is benefiting greatly from global demand for AI infrastructure. Its share price has risen by around 70% this year, thanks to growth in cloud revenue. In September, the company announced that its cloud computing revenue would increase by 700% over the next three fiscal years. During the presentation of its quarterly figures, Oracle reported that total contract commitments had risen by 359 percent to $455 billion."

Oracle generated about $900 million from renting servers with Nvidia chips in the quarter ending in August, but gross profit on those rentals was only about $125 million. Weak margins led to a more than 7% intraday share-price drop for Oracle and a slight fall for Nvidia. Bloomberg reported that rentals of smaller quantities of new and older Nvidia chips may have produced significant losses. KeyBanc Capital Markets estimates Oracle may need to borrow roughly $100 billion to build data centers and infrastructure tied to a $300 billion OpenAI contract, which includes 4.5 gigawatts of capacity and has raised contract commitments to $455 billion.

Read at Techzine Global