Internal financial documents suggest that Oracle's GPU deals with the likes of OpenAI and other customers saw an average gross profit margin of just 16 percent.

As reported by The Information, citing internal documents it has seen, the profits Oracle is seeing from renting out its AI servers are generating less profit than equity analysts previously estimated.

For the latest GPUs, the company is running at a loss, with the company loing nearly $100 million from rentals of Nvidia’s Blackwell chips in the three months that ended in August.

While the report concludes that this could suggest a concerning financial outlook, the analysis has its critics.

The Information reports that, in the three months ending in August, Oracle generated $900 million for renting out AI servers, with a gross profit of $125 million, or 14 cents for every $1 of sales.

The company does not publicly share financial data for its AI cloud server unit.

While sales have tripled in the past year, profit margins varied between 10 and 20 percent, with an average of 16 percent.

The profit margin is impacted by various factors - including the cost of labor, power, and other running costs of Oracle data centers, as well as depreciation expenses of equipment. The internal documents state that other unspecified depreciation expenses are costing it around seven percentage points of its margin.

In addition, there is a gap between when Oracle gets the chips into its data centers, and when customers start using them and paying them, which has a further impact on the margin.

A spokesperson declined to comment to DCD.

During the company's September earnings call, Oracle revealed it had more than $455 billion in remaining performance obligations (RPOs) at the end of its first quarter of fiscal year 2026, having signed several significant cloud contracts with "the who's who of AI." It was later revealed that within this was a $300 billion contract with OpenAI.

However, it has since been suggested that, to finance that deal, Oracle itself could need to source as much as $100 billion in debt over the next four years to build out the necessary capacity. Last month, Oracle sold a series of bonds to raise $18bn.

Currently, this is only part of Oracle's business offering. The Information suggests that if AI server rentals continue to grow in terms of Oracle's proportion of business, the overall gross profit margin will take a hit. It is currently at around 70 percent.

The Information further notes that this will have affected all the major cloud providers, as the Nvidia server chips are far pricier than traditional servers, and come with added costs like specialized networking equipment and power costs.

Additionally, cloud providers have offered discounts on rental prices to help attract big deals with customers.

While the report comes to the conclusion that this spells bad news for Oracle, that framing has not been without its critics.

The profit margins, according to some analysts, are on par with expectations. Stifel analyst Brad Reback said he previously forecast roughly 16 percent gross margins for Oracle's cloud business, as per a report from Investor's Business Daily.

"While it's entirely possible new, sub-scale, GPU workloads are below the ~25 percent level, we believe that as this OCI segment scales, gross margins should meaningfully improve," Reback wrote in a client note.

"We expect to hear much more about this, as well as significant out-year operating expenses leverage, at next week's analyst day."

Similarly, Guggenheim stock analyst John DiFucci noted that the aforementioned gap between getting capacity live and paying customers should not be taken as a bad omen.

"We wouldn't be surprised to see lower gross margin contribution at the beginning of an AI training deal before the revenue starts, but we believe it's reasonable to expect any deal to be at least 25 percent gross margin over its life – or Oracle wouldn't sign it," DiFucci wrote.

Finally, while Nvidia is clearly not a neutral party, the chipmaker's CEO, Jensen Huang, has dismissed the criticism of Oracle's financial standing. Huang said that the company is "going to do incredibly well" in an interview with Jim Cramer on Tuesday, October 7.

“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,” Huang said.

Oracle's stock value took a hit following The Information's report, but it remains significantly up over the past year. Shares are currently valued at around $288, up from $169 this time last year.