The AI bubble may be showing its first major cracks—and Oracle is at the center of the storm. After a stunning 36% single-day stock surge fueled by bold AI growth promises, the tech giant’s shares tumbled nearly 7% this week as internal documents revealed troubling financial realities behind its cloud computing boom.
Table of Contents
- Oracle’s AI Boom—and Sudden Bust
- The Cloud Profit Reality Check
- Is the Entire AI Rally at Risk?
- Wall Street’s Growing Skepticism
- What Happens Next for AI Stocks?
- Sources
Oracle’s AI Bubble Moment
Just weeks ago, Oracle seemed unstoppable. The company announced it expected its cloud revenue to skyrocket by 700% over the next three fiscal years, citing major partnerships with AI heavyweights like OpenAI. Investors went wild—sending Oracle’s stock up 36% in a single day, one of the largest single-day jumps in tech history.
But the euphoria didn’t last. On October 8, 2025, The Information published internal Oracle documents showing that the company’s AI-powered cloud segment—its crown jewel—is generating razor-thin margins that would make even a grocery store blush.
The Cloud Profit Reality Check
According to the leaked data, Oracle’s cloud business brought in roughly $900 million in the quarter ending August 2025 from renting out servers powered by Nvidia chips. But its gross profit? Just $125 million—translating to a margin of only 14%.
Over the past year, as sales nearly tripled, margins fluctuated between less than 10% and just over 20%, averaging around 16%. To put that in perspective, many non-tech retail businesses operate on higher margins.
| Metric | Oracle Cloud (AI Segment) | Typical Retail Business |
|---|---|---|
| Gross Profit Margin | ~16% | 20–30% |
| Revenue Growth (YoY) | ~200% | 3–7% |
| Capital Intensity | Extremely High | Moderate |
“High growth with low margins isn’t sustainable unless you’re Amazon in 2005,” said Priya Mehta, a tech analyst at Bernstein. “Oracle isn’t reinvesting—it’s burning cash to chase AI hype.”
Is the Entire AI Bubble at Risk?
Oracle’s stumble is amplifying broader concerns about the artificial intelligence rally. Since 2023, AI-related stocks have soared on promises of transformative technology—but actual revenue and profitability have lagged.
Experts warn this mirrors the dot-com bubble: not every company will survive, even if the underlying technology (like the internet—or AI) is real and revolutionary.
“When the dot-com bubble burst, Amazon and Google survived because they had real business models,” said Andrew Ross Sorkin at the Masters of Scale Summit in San Francisco. “The question now is: which AI companies actually make money?”
Wall Street’s Growing Skepticism
Investors are starting to shift from “fear of missing out” to “fear of getting burned.” Hedge funds have begun trimming positions in speculative AI plays, while institutional buyers are demanding clearer paths to profitability.
“The market is waking up,” said Marcus Lin, portfolio manager at Horizon Capital. “AI isn’t magic. You still need unit economics that work.”
What Happens Next for AI Stocks?
Oracle’s case may be a canary in the coal mine. If other AI-focused firms can’t demonstrate sustainable margins—not just server rentals or vague partnerships—the entire sector could face a painful correction.
That doesn’t mean AI is doomed. But the era of blind faith in AI hype may be ending. As one Silicon Valley veteran put it: “The bubble isn’t about AI. It’s about expectations outpacing execution.”
