Oracle Corporation has revealed its expected gross margins for large-scale AI infrastructure projects for the first time, alleviating investor worries regarding the profitability of this critical new business segment.

At the annual investor conference in Las Vegas on October 16, Oracle illustrated the profitability outlook for its AI infrastructure business with specific examples. A six-year AI infrastructure project is projected to generate $60 billion in total revenue, with a gross margin of up to 35%.

Previously, despite Oracle signing numerous AI data center development agreements with clients such as OpenAI, Meta, and Musk's xAI, which bolstered the company's valuation, Wall Street has expressed skepticism about the profitability of this business. Concerns were raised recently when it was noted that some of Oracle's AI cloud services have a gross margin as low as 14%.

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

"The newly disclosed figures help alleviate concerns regarding low profitability."

Following the release of this data, market confidence in the profitability of Oracle's AI infrastructure business intensified, driving the stock price to rise by over 5% before retracting slightly. This also positively impacted the stock prices of peers such as CoreWeave.

Early Business Profitability Raises Concerns

Oracle's cloud business drew scrutiny last week as its profit margins appeared lackluster due to the costs associated with renting advanced chips from Nvidia.

According to reports, for the last financial quarter ending in August, Oracle recorded $900 million in revenue from server rentals and $125 million in gross profit, equating to a gross margin of just 14%, or $0.14 profit for every dollar of sales. This is lower than many non-tech retail companies and significantly below Oracle's traditional software business's gross margin of around 70%.

The documents indicate that in some cases, Oracle reported "considerable" losses due to small-scale rentals of both new and older versions of Nvidia chips, including a near $100 million loss from leasing the new Blackwell architecture chips in the last financial quarter.