Oracle Corp. has long been a stalwart in enterprise software, but its pivot to cloud computing, particularly in the artificial intelligence arena, is testing the limits of profitability amid surging demand. The company recently raised its revenue projections for AI-driven cloud services, signaling confidence in future growth, yet internal data reveal ongoing struggles with margins on older hardware. This duality highlights the high-stakes balancing act tech giants face as they race to capitalize on AI’s boom.

In a briefing reported by The Information, Oracle disclosed challenges in achieving gross profit margins above 25% from renting out one- to two-year-old Nvidia Corp. server chips to AI developers. These chips, essential for training complex models, represent a significant investment for cloud providers, but depreciating hardware erodes returns over time. Oracle’s co-CEO Clay Magouyrk outlined ambitions for 30% to 40% margins in the coming years, a target that would require optimizing newer chip deployments and scaling operations efficiently.

Navigating Margin Pressures in AI Infrastructure
As AI workloads intensify, Oracle’s cloud business is under scrutiny from investors seeking sustainable profitability. The company’s efforts to reassure stakeholders come amid reports of thin margins on existing Nvidia-powered servers, which could impact short-term financial health even as long-term projections soar.

Oracle projected cloud infrastructure revenue to reach $166 billion by fiscal 2030, comprising nearly 75% of total sales, according to details shared in a Reuters article at Reuters. This aggressive forecast is fueled by partnerships with heavyweights like OpenAI and Meta Platforms Inc., who rely on Oracle’s infrastructure for AI model development. However, the path to these figures involves overcoming hurdles with legacy chips, where rental revenues haven’t fully offset acquisition and operational costs.

Magouyrk emphasized during analyst calls that newer Nvidia chips and improved utilization rates would bridge the profitability gap. This strategy aligns with broader industry trends, where cloud providers like Amazon Web Services and Microsoft Azure are also investing billions in AI hardware to meet exploding demand from generative AI applications.

Strategic Shifts Toward Profitable Growth
For industry insiders, Oracle’s projections underscore a calculated bet on AI’s enduring demand, but the reliance on Nvidia’s ecosystem introduces vulnerabilities, including supply chain constraints and pricing volatility that could further strain margins on older inventory.

Earlier reports from The Information highlighted internal data showing Oracle’s Nvidia cloud business generated only 14% gross margins on $900 million in sales for the quarter ending August, as noted in a CNBC piece at CNBC. Such figures have sparked investor concerns, contributing to stock volatility despite Oracle’s status as a top-performing megacap in 2025. Nvidia CEO Jensen Huang publicly endorsed Oracle’s potential, stating in a CNBC interview that the company would become “wonderfully profitable” through its AI cloud rentals.

To achieve its goals, Oracle is diversifying its customer base beyond AI startups, targeting enterprise clients with hybrid cloud solutions. This includes $65 billion in recent quarterly bookings, as Magouyrk noted, spanning various sectors not solely dependent on OpenAI.

Investor Reassurance Amid Market Doubts
The broader market reaction, as covered in a New York Times analysis at The New York Times, reflects worries about an AI-fueled stock bubble, with Oracle’s margin struggles adding fuel to skepticism about overhyped valuations in tech.

Oracle’s leadership remains optimistic, pointing to a total revenue target of $225 billion by 2030, driven by cloud expansion. UBS analysts, in commentary reported by MarketScreener at MarketScreener, described these targets as ambitious yet achievable through accelerating AI adoption. For insiders, the key will be monitoring how Oracle navigates hardware depreciation while innovating in AI services.

Critics argue that without rapid margin improvements, Oracle risks lagging behind peers. Yet, with co-founder Larry Ellison nearing the top of global wealth lists amid stock surges, as detailed in Reuters at Reuters, the company’s trajectory suggests a bold reinvention is underway, potentially reshaping enterprise AI infrastructure for years to come.