Oracle Corp. experienced a significant decline in its stock value, marking its largest fall in nearly nine months. This downturn suggests that investors had higher expectations regarding the financial boost from Oracle’s substantial investments in artificial intelligence (AI) infrastructure.

The tech giant has been actively engaged in developing data centers specifically designed to power AI operations for major clients, including OpenAI, Meta Platforms Inc., and Elon Musk’s xAI. These strategic partnerships involve multibillion-dollar deals, positioning Oracle as a key player in the burgeoning AI infrastructure market.

Looking ahead, Oracle provided a long-range financial outlook, projecting its cloud infrastructure business to generate $144 billion in sales by fiscal year 2030. Furthermore, the company anticipates its overall annual revenue to reach $225 billion by the same year. However, a critical challenge highlighted by analysts, such as Brad Sills from Bank of America, is the pace at which Oracle can establish and supply these crucial data centers to meet the escalating demand. This limitation is primarily attributed to existing supply constraints across vital resources like land, buildings, energy, and GPUs.

The shares of Oracle fell as much as 8.2% on Friday in New York, representing the steepest intraday decline since January 27, despite having gained 88% year-to-date through Thursday’s close. While the influx of AI cloud bookings has positively impacted the company's valuation, investors have concurrently voiced concerns about the long-term profitability of these ambitious endeavors. Oracle attempted to alleviate these profitability concerns during its analyst day in Las Vegas.

During a presentation, Oracle illustrated that an AI infrastructure project generating $60 billion in total revenue over a six-year period could achieve a gross margin of 35%. Co-Chief Executive Officer Clay Magouyrk emphasized that this margin profile is indicative of even the company’s largest customers. Bloomberg Intelligence analyst Anurag Rana noted that this disclosure “can help quell concerns about lower profitability,” particularly following earlier reports, such as one from The Information, suggesting some AI cloud arrangements had a 14% margin. Rana further expressed optimism, stating that “Given that this business is still in its infancy, it’s highly likely that profit will improve over the next few years.”