Revenue less its direct costs, such as inference, as a share of revenue. Gross profit is the same amount in dollars. Chapter 11.
From The AI Compute Race. Read the book
Where the book uses it
- Chapter 11 — What the Machine Has to Earn
The revenue the buildout needs against the revenue it has, on whose clock the gap must close, and the two ceilings on what AI can earn.
Sources that use it
- Oracle, Financial Analyst Meeting 2025, Clay Magouyrk’s Oracle Cloud Infrastructure slides, 16 October 2025 (the seller’s own illustration at an investor event, not a filed result: a non-GAAP gross margin of 30 to 40 percent on AI infrastructure against 65 to 80 percent on its enterprise business; the “AI Infrastructure Delivery Example”, a six-year contract of $10 billion a year, “=$60B” of revenue against “=$39B” of costs, “Gross margin: $21B, 35%”). In the Sources
- TSMC, third quarter 2026 earnings release and TSMC, quarterly management report for the third quarter of 2026, both 15 October 2026 (“In US dollars, third quarter revenue was $46.72 billion, which increased 41.2% year-over-year and increased 16.2% from the previous quarter”; “shipments of 2-nanometer accounted for 8% of total wafer revenue,” against 3 percent in the second quarter in the report’s table; “Gross margin was 66.4% in 3Q26, 1.3 percentage points lower than 2Q26, primarily due to the margin dilution from the initial ramp-up of N2 technology”). In the Sources
- Microsoft Corporation, Form 10-Q for the quarterly period ended 31 March 2026, filed 29 April 2026 (accession 0001193125-26-191507) (“In October 2025 and April 2026, we extended this partnership”; “Microsoft is a major investor in OpenAI and will continue to receive revenue-sharing payments”; an investment of “approximately 27 percent of OpenAI on an as-converted basis”; total funding commitments of $13 billion, $11.8 billion funded at 31 March 2026; the words exclusive, 2032, cap, right of first refusal and AGI absent from the filing, and no material-contract exhibit; MD&A, Intelligent Cloud: “Cost of revenue increased $4.8 billion or 47% driven by investments in AI infrastructure to support growing customer demand and increased GitHub Copilot usage” and “Gross margin increased $3.1 billion or 19% driven by growth in Azure. Gross margin percentage decreased driven by the continued investments in AI infrastructure, offset in part by efficiency gains in Azure” — GitHub Copilot named once in the filing and in no margin sentence). In the Sources
Related terms
From the glossary of The AI Compute Race.
How to cite this page
Dryburgh, Lee S. “Gross margin.” In The AI Compute Race. DRYBURGH. https://dryburgh.com/vol1/glossary/gross-margin (accessed 2026-11-01).
BibTeX
@misc{dryburgh-gross-margin-2026,
author = {Dryburgh, Lee S.},
title = {{Gross margin}},
howpublished = {In \emph{The AI Compute Race}, DRYBURGH},
year = {2026},
url = {https://dryburgh.com/vol1/glossary/gross-margin},
note = {Accessed 2026-11-01}
}