Oracle Corp. provided expectations for gross margins on large-scale AI infrastructure projects, allaying some Wall Street concerns about the profitability of a key new business unit.
For example, infrastructure projects for artificial intelligence workloads such as data centers that generate $60 billion in total revenue over six years will have gross margins of 35%, the company said Thursday in a presentation to investors at its annual conference in Las Vegas. Gross profit margin represents the percentage of revenue that remains after deducting the cost of producing a good or service.
The margin profile in this example “represents a very large customer,” Co-Chief Executive Officer Clay Magouik said in a conversation with analysts.
After going public, the company’s stock price rose about 5% and closed at $313, up 3.1% in New York. Shares fell about 2% in after-hours trading after Oracle released its long-term revenue and profit outlook late Thursday.
Oracle has signed major contracts to develop AI data centers for customers such as OpenAI, Meta Platforms Inc. and Elon Musk’s xAI. Although these bookings boosted the company’s valuation, investors expressed concerns about the production’s profitability.
The new disclosures “could help allay concerns about declining profitability,” said Anurag Rana, an analyst at Bloomberg Intelligence. The Information reported last week that some of Oracle’s AI cloud contracts recently had margins of 14%. “Given that this business is still in its early stages, it is very likely that margins will improve over the next few years,” Rana wrote.
Oracle also said it expects annual revenue of $225 billion in fiscal 2030, higher than analysts’ average estimate of $198 billion, according to data compiled by Bloomberg. The company expected adjusted earnings to be $21 per share by the end of the year. Analysts’ average estimate was $18.50 per share. bloomberg
