Semiconductor Sector Falters as Oracle's AI Woes Spook Investors
Reports of a $100 million loss on Nvidia chip rentals at Oracle are fueling concerns over the profitability of AI investments, sending bearish signals across the market.
The semiconductor sector is facing significant headwinds this week, as reports of substantial losses at Oracle related to its AI infrastructure have cast a pall over the market. The tech giant is said to have lost nearly $100 million in three months from renting out Nvidia's coveted Blackwell chips, a revelation that has investors questioning the return on investment in the booming AI space.
The market's reaction has been swift and telling. The Direxion Daily Semiconductor Bear 3X ETF (SOXS), a key indicator of negative sentiment in the sector, surged by 6.9% on elevated volume. This move suggests that traders are betting on a broader decline in semiconductor stocks, spooked by the idea that the massive capital outlays for AI may not be as profitable as once hoped.
The concerns stem from a deeper look at Oracle's AI cloud business. While the division generated around $900 million in revenue in the last quarter, its gross margin was a mere 14%, a stark contrast to the 70% margins typically seen in Oracle's traditional software segments. , including the high cost of Nvidia's GPUs, aggressive pricing strategies to capture market share, and a lag in customer utilization of the expensive hardware.
Oracle's stock has not been immune to the fallout, dropping by as much as 5% in the wake of the news. The implications, however, extend far beyond a single company. The episode has ignited a "bear narrative of questionable AI ROI" that has rippled across the tech landscape, with other major AI and semiconductor stocks seeing declines of 2-5%. , given the immense costs involved.
Despite the bearish sentiment, some industry leaders remain optimistic. Nvidia CEO Jensen Huang has publicly stated that he believes Oracle's GPU margins will eventually be "wonderfully profitable," signaling his confidence in the long-term demand for AI compute power. , where the fortunes of key players like OpenAI, Oracle, and Nvidia are deeply intertwined. For now, however, the market remains on edge, carefully watching for further signs of whether the AI boom will translate into sustainable profits.