Oracle dropped 5% on Tuesday, and it wasn’t random. Investors got spooked after The Information dropped a report exposing some nasty math behind Oracle’s cloud business. The report said Oracle plans to buy billions of dollars worth of Nvidia chips to rent out to AI clients like OpenAI.
That sounds huge until you look at the profits. Internal documents showed that Oracle made just 14% gross margins on $900 million in sales from that Nvidia-powered AI cloud operation over the last quarter ending in August. Compare that to Oracle’s usual 70% margin.
That gap is brutal. This throws a fat question mark on the company’s bold AI pivot. Oracle wants to go from old-school enterprise tech to major AI infrastructure king. But these Nvidia chips don’t come cheap. And worse, the company is pricing its AI chip rentals too low to protect margins. Basically, they’re spending big and earning thin. Investors hate that combo. That’s why the stock got hammered.
Oracle struggles to convince investors on AI margins
The report also hit Oracle right where it hurts, its future narrative. Back in September, Oracle bragged that its remaining performance obligations, aka its cloud backlog, had exploded 359% year over year. They also tossed out some huge numbers: a forecast of $144 billion in cloud infrastructure revenue by 2030, up from just above $10 billion in 2025.
A big chunk of that expected cash is tied to Oracle’s role in Project Stargate. That’s the mega-partnership with OpenAI to build five giant data centers loaded with Nvidia AI chips. Oracle’s cloud bet is essentially stapled to OpenAI’s expansion and Nvidia’s hardware.
If that bet goes sideways, so does Oracle’s entire growth pitch. And with 14% gross margins on a nearly billion-dollar segment, Wall Street isn’t impressed.
Tuesday’s market action proved that. The S&P 500 dropped 0.4%, and the Nasdaq slid 0.7%, dragged down in part by Oracle’s poor showing. Even the Dow dipped 147 points, or 0.3%. Oracle’s slide was one of the biggest reasons for that slump. Tech investors had been hyped about AI profits. But this report showed the numbers might not live up to the marketing.
Government shutdown adds pressure to Oracle selloff
Then there’s Washington’s mess. The U.S. government shutdown entered its second week on Tuesday, adding even more uncertainty. Donald Trump, now back in the spotlight, took to Truth Social Monday night to aim at Democrats.
He wrote, “happy to work with the Democrats on their Failed Healthcare Policies, or anything else, but first they must allow our Government to re-open.” Earlier that day, he told reporters in the Oval Office that there were talks happening that could “lead to very good things” on healthcare.
But Senate Minority Leader Chuck Schumer wasn’t having it. He fired back on X (formerly Twitter): “THIS ISN’T TRUE.” He also said Democrats are “ready to make it happen” if Republicans actually want to talk about healthcare for families.
Markets don’t like chaos, and that’s exactly what this back-and-forth is. Investors rushed to safer assets. Gold futures shot up to $4,000 per ounce, a record high. Meanwhile, cloud-heavy stocks like Oracle got dumped.
The longer the shutdown drags on, the worse it gets. Federal workers, like TSA agents and air traffic controllers, are missing paychecks. Even active-duty military could go unpaid if Congress doesn’t fix it soon. When asked if furloughed workers would get back pay, Trump said, “depends on who we’re talking about.”
