--- title: "Gross margin: what it means · The AI Compute Race · DRYBURGH" source: https://dryburgh.com/vol1/glossary/gross-margin description: "Gross margin: Revenue less its direct costs, such as inference, as a share of revenue. Gross profit is the same amount in dollars. Chapter 11." --- # Gross margin What does “Gross margin” mean? Gross marginRevenue 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](https://dryburgh.com/vol1#buy) ## Where the book uses it - [Chapter 11 — What the Machine Has to Earn](https://dryburgh.com/vol1/notes/chapter-11)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](https://dryburgh.com/vol1/sources/company#oracle-fam-oct25) - 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](https://dryburgh.com/vol1/sources/company#tsmc-3q26-oct26) - 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](https://dryburgh.com/vol1/sources/filing#msft-10q-q3fy26) ## Related terms - [Gross profit](https://dryburgh.com/vol1/glossary/gross-profit) - [Inference](https://dryburgh.com/vol1/glossary/inference) - [Adoption clock](https://dryburgh.com/vol1/glossary/adoption-clock) - [Run rate](https://dryburgh.com/vol1/glossary/run-rate) - [Subsidy clock](https://dryburgh.com/vol1/glossary/subsidy-clock) From the glossary of The AI Compute Race. - [Campuses](https://dryburgh.com/vol1/ledger) - [Tests](https://dryburgh.com/vol1/tests) - [Scorecard](https://dryburgh.com/vol1/scorecard) - [Data](https://dryburgh.com/vol1/data/releases) - [Chapter by chapter](https://dryburgh.com/vol1/companion) - [The record at a glance](https://dryburgh.com/vol1/observatory) - [The machine](https://dryburgh.com/vol1/machine) - [One campus, four futures](https://dryburgh.com/vol1/hyperion) - [Glossary](https://dryburgh.com/vol1/glossary) - [People](https://dryburgh.com/vol1/people) - [Sources](https://dryburgh.com/vol1/sources) - [Notes](https://dryburgh.com/vol1/notes) - [Where the book was wrong](https://dryburgh.com/vol1/corrections) - [Where its sources were wrong](https://dryburgh.com/corrections?book=vol1) - [The Paper](https://dryburgh.com/vol1/paper) - [Consent](https://dryburgh.com/vol1/consent) - [Who builds and pays](https://dryburgh.com/vol1/parties) *The AI Compute Race: Five Races, One Machine* is a book by Lee S. Dryburgh, the first volume of THE COMPUTE ECONOMY, published by Dryburgh, an imprint of Contestra OÜ, Tallinn, Estonia; its record closes on 8 November 2026. [About the book](https://dryburgh.com/vol1)[Tell me when it is out](https://dryburgh.com/vol1#notify)