She threw it all away just to make me look ridiculous. And a man in my position can't afford to be made to look ridiculous. Now you get the hell out of here!
—Jack Woltz, The Godfather (1972)
A new piece on Oracle's weak GPU rental returns from The Information (based on internal Oracle documents) has people buzzing, even if it shouldn't.
But first, some of the key points:
- Oracle's getting 14% gross margin from renting out Nvidia's Blackwell.
- 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.
- That is equal to 14 cents for every $1 of sales.
- That’s worse than the gross margins of many nontech retail businesses.
There is no denying these are weak numbers, but they should not be a surprise. We already know that cap rates from hyperscaler data centers—with their long-term contracts, strong renter credit quality, etc.—are not much above¹ 30-year treasuries. This is a highly capital-intensive business with unimpressive margins.
¹ Data center REITs are commanding the second-highest enterprise values across asset classes, trailing only tower REITs, while boasting the lowest implied cap rates at 4.4%. (Source: CRE Daily)