Oracle Corp. shares plummeted, resulting in a $40 billion market capitalization loss this October 7th. The trigger was a report that revealed the company’s unsustainably low-profit margins in its AI cloud division. This event not only shook Wall Street but also caused a notable fall of Oracle shares and cryptocurrencies, highlighting the dangerous interconnection between both markets.
The report exposed an alarming financial reality for the tech giant. Despite optimistic earnings announcements, Oracle is reportedly making a mere 14 cents in profit for every dollar spent on Nvidia server rentals. Even worse, the investigation revealed that the company lost $100 million in the last quarter from renting out the advanced Blackwell chips, a theoretical cornerstone of its artificial intelligence growth strategy.
Unsustainable Margins: The Truth Behind the AI Business
Oracle’s crisis uncovers a potentially systemic problem in the AI sector: profitability is much lower than advertised. The issue isn’t a lack of demand, but that AI infrastructure is extremely expensive. If one of the leading companies like Oracle cannot generate solid profits from these services, serious doubts arise about the long-term viability of the business model that has fueled the recent investment euphoria in the tech sector.
This situation calls into question whether these AI platforms will ever be profitable, even under ideal conditions. The pressure to grow and capture market share has led companies to operate on minimal margins. This model appears to be unsustainable, and the market has reacted fearfully to the possibility that current AI company valuations are artificially inflated by speculation rather than solid economic fundamentals.
The Domino Effect? The Circular Financing Bubble at Risk
Oracle’s plunge also sheds light on the “circular financing” phenomenon dominating the industry. This cycle involves AI model developers investing massively in chip manufacturers, who in turn sign large commercial deals with the same developers. This ecosystem constantly feeds itself, creating a bubble where valuations soar based on internal investments rather than necessarily on real external revenue.
The stumble of a player as significant as Oracle could be the pin that bursts that bubble. The direct connection to the crypto market became evident when the total capitalization of digital assets fell in parallel. This shows that the markets are deeply intertwined, and negative sentiment in the AI sector is now almost instantly transmitted to the cryptocurrency space, which is equally sensitive to speculation.
The sudden fall of Oracle shares and cryptocurrencies serves as a stark reminder of the fragility of the current tech boom. Investors are now wondering which company might be next to show that its spectacular AI growth figures do not translate into real profitability. The focus is shifting from growth-at-all-costs to financial sustainability, a change that could redefine the future of both sectors.
