Was Oracle the Canary in the Coalmine for AI?
All of America's leading tech stocks are dangerously interconnected
Well, that’s not how this story is supposed to go…
Oracle (ORCL) rattled Wall Street on Tuesday when it reported that its AI businesses weren’t actually all that profitable. (Remember, this is the same Oracle that saw its share price explode 40% higher in a single day last month on optimism over AI-related cloud revenues.)
Well, those revenues are still coming in, at least for now. They’re just not generating the profit margins investors had bet on. And it’s raising uncomfortable questions not only about Oracle but about the entire AI-fueled tech economy.
As reported in The Daily Rip,
Oracle fell Tuesday, helping to pull down the entire tech market after investigative reporting from The Information found the company was losing money on its scheme to buy up Nvidia chips and rent their processing power out. Oracle lost $100M renting out chips, according to CNBC. If they are struggling to profit, investors are worried the rest of the AI world will struggle too.
The company pulled in $900M in its cloud business in the three months ending in August, which sounds great if you are anyone but Oracle. The rent-a-brain plan had a gross margin of 14%, compared to Oracle’s overall 70% margin.
That signals two things: Nvidia chips are extremely expensive to purchase and host, and Oracle may have its work cut out for it to generate profits. The company said last month it had a huge backlog for data center contracts, which climbed 359% to $455 billion, stretching out to 2030. Compared to 2025’s estimated $14B, that’s a pretty nice on-ramp to superstar status, but today’s warning cast a shadow on those hopes.
This is just a single anecdote, and we don’t even know yet if it’s 100% true. Oracle hasn’t commented on the report. But it tracks with the general lack of profitability in AI.
As I wrote Tuesday, ChatGPT creator OpenAI isn’t profitable. It’s projected to burn through $115 billion by 2029. Given its massive investment needs to stay competitive with Grok, Anthropic and the rest, it may never be profitable. And it constantly runs the risk that an upstart like China’s DeepSeek will be able to match or exceed it at a lower cost.
The Circular AI Economy
The lack of profitability at this stage isn’t necessarily problematic. It’s still early. It took some of the winners from the 1990s internet boom — including powerhouses like Amazon and Google — years to really hit their stride.
The problem is that the buying appears to be a closed loop.
Most of the hundreds of billions of dollars being invested in AI is essentially being passed around among the Mag 7 and a handful of other tech names with most of it being ultimately tied to Nvidia and OpenAI.
Per Bloomberg,
The recent wave of deals and partnerships involving [Nvidia and OpenAI] are escalating concerns that an increasingly complex and interconnected web of business transactions is artificially propping up the trillion-dollar AI boom. At stake is virtually every corner of the economy, with the hype and buildout of AI infrastructure rippling across markets, from debt and equity to real estate and energy.
The companies, which ignited an AI investment frenzy three years ago, have been instrumental in keeping it going by inking large and sometimes overlapping partnerships with cloud providers, AI developers and other startups in the sector. In the process, they’re now seen as playing a key role in ratcheting up the risks of a possible AI bubble by inflating the market and binding the fates of numerous companies together. OpenAI alone has now struck AI computing deals with Nvidia, AMD and Oracle Corp. that altogether could easily top $1 trillion. Meanwhile, the AI startup is burning through cash and doesn’t expect to be cash-flow positive until near the end of the decade.
Like something resembling a Japanese keiretsu, everyone owns a piece of everyone else.
Source: Bloomberg
Of course, it’s not hard to see how this ends monumentally badly.
If OpenAI or Nvidia hits a rough patch, they’re taking the entire global economy with them.
According to Harvard economist Jason Furman, virtually all economic growth in the first half of 2025 was due exclusively to investment in data centers and other AI infrastructure. By Furman’s calculations, GDP growth excluding that spending would have been a paltry 0.1%.
A year from now, the market may very well be sitting at new all-time highs and AI might have led us all to a new promised land of abundance.
Or…
We might look back and recognize that Oracle’s profitless deal with Nvidia was the canary in the coalmine warning us that the AI economy was on the verge of imploding.