Nvidia’s CEO, Jensen Huang, recently commented on Oracle’s profitability amidst challenges in their cloud business, primarily centered on Nvidia’s GPUs.
Nvidia CEO’s Optimism on Oracle’s Future
During an interview at the CNBC Investing Club’s Monthly Meeting, Huang expressed confidence in Oracle’s prospects. Despite a report indicating thin margins due to high chip costs, he remains optimistic about Oracle’s success.
Oracle’s Financial Performance Amid Challenges
Oracle’s shares experienced a decline of up to 5% after a tech publication highlighted its cloud business challenges. The report mentioned that Oracle’s cloud services involving Nvidia chips earned $900 million in the quarter ending in August, but with a troubling gross margin of only 14%. In contrast, the overall gross margin for Oracle hovers around 70%.
- Oracle’s cloud sales: $900 million
- Gross margin for Nvidia cloud business: 14%
- Overall gross margin for Oracle: ~70%
- Decline in Oracle’s stock: 2.5% to $284.24 per share
Long-Term Profitability Outlook
Huang acknowledged that while Oracle may experience short-term margin pressures, the profitability of new technologies typically improves over time. He stated, “When you first ramp up a new technology, there’s every possibility that you might not make money in the beginning, but over the life of the system, they’ll be wonderfully profitable.”
The Complexity of AI Infrastructure
The Nvidia CEO elaborated on the challenges of operating data centers for AI. He emphasized that running large-scale systems like those Oracle manages requires significant resources and expertise. Huang noted, “These things are giant supercomputers. You’ve got to build infrastructure, you’ve got land, it’s got power, it’s got cooling, and then you have to operate these things.”
Strong Demand and Future Projections for Oracle
Despite current challenges, Oracle reported a remarkable 359% increase in remaining performance obligations year-over-year in its fiscal 2026 first quarter. This surge is partly attributed to a substantial $300 billion computing deal with OpenAI, the creator of ChatGPT.
- Backlog increase: 359% year-over-year
- Major deal with OpenAI: $300 billion
- Forecasted cloud revenue by 2030: $144 billion
- Cloud revenue in 2025: just over $10 billion
Following the announcement of these contracts and expectations, Oracle’s stock experienced a significant one-day rise of 36%. However, it has since retracted by approximately 13% due to concerns surrounding the sustainability of AI investments.
Conclusion
In light of these developments, Jensen Huang’s optimistic outlook toward Oracle’s profitability and the future of AI technology highlights the complexities and potential rewards of investing in advanced computing solutions.
