Stifel analyst Brad Reback notes that Oracle (ORCL) is trading off today on an Information article that calls into question the profitability of new GPU capacity the company has been bringing online. According to the piece, “In the three months that ended in August, Oracle generated around $900 million from rentals of servers powered by Nvidia chips and recorded a gross profit of $125 million-equal to 14 cents for every $1 of sales…” The firm notes this is well below its Q1 OCI gross margin forecast of 26% and below its estimated Q1 sequential OCI incremental gross margin of 25%. While it is “entirely possible” new, sub-scale, GPU workloads are below the 25% level, Stifel believes that as this OCI segment scales, gross margins should meaningfully improve. The firm expects to hear much more about this at next week’s analyst day. Stifel says it would use today’s weakness as a buying opportunity into next week. The firm has a Buy rating on the shares.
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