Oracle is generating significant revenue by renting out Nvidia GPU-powered servers, but its cloud computing business reports a gross margin far below market expectations.
According to Bloomberg and CNBC, citing The Information, internal documents reveal that Oracle earned about US$900 million in revenue from leasing servers equipped with Nvidia chips during the first quarter of fiscal year 2026, ending August. However, the gross profit was only around US$125 million, resulting in a gross margin of approximately 14%.
An Oracle spokesperson declined to comment on the report.
Bloomberg noted that high chip procurement costs and data center construction expenses have weighed down Oracle's overall gross margin, which recently hit a multi-year low of 67.3% according to the latest financial statements.
Guggenheim analyst commentary suggests Oracle's cloud business faces significant short-term profitability pressure due to initially low margins, relying heavily on long-term scale efficiencies to improve financial performance. The firm expects the long-term gross margin will not fall below 25%.
Oracle's cloud segment has rapidly expanded amid the AI boom. CEO Safra Catz disclosed during an earnings call that in the first quarter of fiscal year 2026, Oracle signed contracts with three major customers, pushing remaining performance obligations (RPO) to US$455 billion—up 359% year-over-year and increasing by US$317 billion quarter-over-quarter. Reports indicate this includes a US$300 billion five-year cloud deal with OpenAI, providing 4.5GW of data center capacity.
Article edited by Jack Wu
