Oracle is gaining benefits from OpenAI's extravagant spending on computational resources
In a move that could reshape the generative AI landscape, Oracle has secured a significant contract with OpenAI, worth an estimated £317 billion in future revenue. This deal, announced in 2024, marks a notable shift away from Microsoft, OpenAI's exclusive cloud provider until then.
The partnership, which far outstrips OpenAI's current revenue, estimated to be around $10 billion, was confirmed in June of last year. The agreement, commencing in 2027, will see Oracle expand its infrastructure to power OpenAI models, a move aimed at addressing the compute power bottleneck that OpenAI has identified as a key challenge in ramping up AI development.
The deal is a significant win for Oracle in the hyperscaler industry, and it comes at a time when the company has made significant gains in the multi-cloud area, driven by surging AI demands. Enterprises globally are shifting to a hybrid or multi-cloud approach, and Oracle's expansion in this area positions it well to capitalise on this trend.
The partnership between Oracle and OpenAI was formalised earlier this year with the Stargate Project, a $500 billion initiative aimed at building out AI infrastructure across the United States. Under the terms of the agreement, OpenAI will essentially owe Oracle an average of $60 billion a year.
Microsoft, a long-term partner and financial backer of OpenAI, has been a key player in supporting the firm through its Azure cloud computing service. However, strained relations between Microsoft and OpenAI have led the latter to seek industry support elsewhere.
Oracle's personal wealth has also seen a boost as a result of this deal. Larry Ellison's personal wealth skyrocketed following the announcement, reflecting the market's confidence in Oracle's ability to deliver on this ambitious project.
The news sent shares of the company soaring, with investors seeing the potential in Oracle's strategic move. This was further evidenced by a similar partnership with AWS, confirmed at its annual conference in Las Vegas just months prior.
As OpenAI expands to meet its surging compute requirements, the deal rests heavily on whether OpenAI's current growth trajectory continues as it looks to draw more customers across both the enterprise and consumer markets. Despite the lack of information available about the name of the contract negotiation leader for OpenAI's supporting infrastructures starting in 2027, one thing is certain: the generative AI race is heating up, and Oracle is well-positioned to play a leading role.
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