🌨️ Oracle’s cloudy outlook

You buy Nvidia’s flagship chips because they’re supposed to be best in class, empowering you to build better AI capabilities or make lots of money off other companies that want to harness the power of the AI boom.

Not quite, per a report from The Information, which revealed that in the three months that ended in August, Oracle lost almost $100 million renting Nvidia’s Blackwell chips.

• The report explains that some of this is a timing issue, a gap between getting data centers equipped for use and when customers start paying for services.

• Citing internal documents, The Information says that Oracle’s “fast-growing cloud business has had razor-thin gross profit margins in the past year or so,” booking a gross profit of $125 million on rentals of servers that utilize Nvidia chips for the three months that ended in August, resulting in a gross margin of just under 14%.

• The pain quickly spread, with stocks including Nvidia, its top AI chip rival Broadcom, memory chip specialist Micron, foundry giant TSMC, neocloud companies Nebius and CoreWeave, disk drive sellers Western Digital and Seagate Technology, data center company Cipher Mining, and zero-revenue nuclear energy firm Oklo all taking a dive. Nvidia and Broadcom did claw their way back to flat by the end of the session.

In a reversal of how OpenAI’s deal with AMD buoyed the AI trade on Monday, this news sparked a broad-based retreat. 

The Takeaway

On one hand, this isn’t great news: if you buy a money printer from Nvidia, you expect it to print some dang money, and you can be certain that investors haven’t run up the price of these AI assets just to eventually squeak out a 14% gross profit margin. But on the other hand, it’s still the very early days, and it does take time to actually get these chips set up and going forward as a business, and early costs are far from an indication of future problems with the bottom line. 

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When you think of the New York Stock Exchange, you might think of the famous Charging Bull statue or an image of a wild-haired trader on the floor, yelling buy and sell orders (though of course almost all trades have been done electronically for quite a while). What you don’t think of is a place where the outcome of Sunday’s NFL matches matters. But the parent company of the NYSE, Intercontinental Exchange, is thinking about the future of futures and announced a $2 billion investment into prediction market Polymarket on Tuesday. 

Right now, Polymarket is barred from business in the US, so the initial scope of the deal focuses on ICE becoming the distributor of the data produced by Polymarket’s predictions business. But Polymarket is expected to begin offering trading in the US again soon, and that has big implications:

• The sports betting business is likely to feel continued pressure from prediction markets. Last year, Americans wagered $140 billion on sports, and much of it flowed through FanDuel and DraftKings. 

• The industry argues that prediction markets are a form of financial derivatives and not sports betting, and therefore should be federally regulated by the CFTC. 

• That could mean prediction markets will bypass state and tribal laws and constraints on sports gambling. In other words, while the majority of states already allow some form of online betting on sports (here’s the map), event contracts can be traded in every state.

• Online platform Kalshi, with a $1 billion valuation, is already live across the US, and its small moves enabling betting on more than yes/no outcomes in sports have already shown how big the impact could be. 

The Takeaway

Bloomberg’s Matt Levine also has this new deal on his mind, and wrote in his Money Stuff newsletter, “Financial markets and sports gambling are merging, and some big financial firms now go around acting like there is no difference between them.” He added that we shouldn’t be surprised, as ultimately “the purpose of the New York Stock Exchange is to give you the bets you want,” whether that’s betting that stock X will go up or that team Y will win the big game. 

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At long last, Tesla finally unveiled its new, cheaper Model Y, the more affordable car that the company has been promising for years. The stripped-down Model Y, dubbed “Standard,” comes with a price tag of $39,990, 11% cheaper than the previous base-level Model Y offered by the EV maker. Tesla also unveiled a “Standard” Model 3.

What the Standard models lack

• Rigetti Computing rose after Benchmark analyst David Williams more than doubled his price target on shares of the quantum computing company

• Lucid sank following weaker-than-expected Q3 vehicle deliveries and a lowered analyst outlook

• Minutes from the Fed’s September meeting