OpenAI turns to Oracle in historic $300 billion cloud partnership

[Skye Jacobs]

OpenAI has struck a landmark deal with Oracle to buy $300 billion in computing power over five years, highlighting both the explosive rise of AI and the growing financial risks around it. People familiar with the matter told The Wall Street Journal that the contract – one of the largest cloud deals ever signed – will take effect in 2027.

The contract dwarfs OpenAI's current annual revenue of about $10 billion, committing the startup to an average of $60 billion per year for cloud services. The scale of the deal highlights the company's financial strain. OpenAI told investors last year it doesn't expect to turn a profit until 2029 and could rack up as much as $44 billion in losses before then.

Source: App Economy Insights

The deal also underscores the enormous energy demands of training and deploying AI systems. Oracle's work with OpenAI will require 4.5 gigawatts of electricity capacity – roughly the output of two Hoover Dams, or enough to power four million homes.

Oracle CEO Safra Catz told analysts the company's cloud pipeline reflects unprecedented demand. In a filing earlier this summer, Oracle hinted at the OpenAI contract by disclosing a cloud services deal expected to generate more than $30 billion in annual revenue starting in 2027.

The contract comes as OpenAI struggles with a persistent shortage of computing capacity, slowing new product rollouts and delaying next-generation AI models. The challenge extends across the industry, with tech firms racing to build data centers and secure advanced chips.

OpenAI has pursued several initiatives to expand its computing capacity. It struck a deal with Broadcom to develop custom chips and partnered with SoftBank on a major venture called Stargate, its umbrella for data center expansion. Stargate stumbled early, and OpenAI now considers the Oracle partnership part of that broader effort.

For years, OpenAI relied exclusively on Microsoft for computing power. With capacity constraints mounting, the company recently sought approval to bring in other cloud providers. The Oracle agreement marks a landmark shift, representing one of the largest bets on OpenAI's growth beyond its ties to Microsoft.

The deal carries significant risks for both sides. OpenAI faces a massive cost burden – many times its current revenue – betting its future on continued explosive growth of ChatGPT and adoption by consumers, businesses, and governments worldwide. At the same time, the startup confronts other pressures, including intense competition for talent, ongoing regulatory scrutiny, and sensitive negotiations with Microsoft over the future of their partnership.

For Oracle, the risk lies in concentrating a large share of future revenue on a single client while already carrying heavy leverage. Its debt-to-equity ratio stands at 427 percent, far above Microsoft's 32.7 percent, according to S&P Global Market Intelligence. Last fiscal year, Oracle generated $21.5 billion in operating cash flow against $27.4 billion in capital expenditures. By contrast, Microsoft produced $136 billion in operating cash flow with $88 billion in capital spending, leaving it far better positioned to handle the massive costs of building AI infrastructure – and highlighting just how big a gamble Oracle is taking.

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OpenAI turns to Oracle in historic $300 billion cloud partnership

 

[yRaz]

Can AI just hurry up and kill us all already, I'm tired of hearing about it and death seems like the only way out.

 

[Revolution 11]

What is the penalty for not meeting the computing power usage goals on OpenAI or not providing it on Oracle's part?

Or is this another paper agreement?

 

[Plutoisaplanet]

This is the real reason for the news yesterday that Larry Ellison briefly became the richest man in the world lol:

But what's sent the stock price skyrocketing nearly 30 percent after normal trading hours on Tuesday is anticipated future earnings. CEO Safra Catz has reported that the company is due $455 billion in remaining performance obligations (RPOs) - customer contracts signed but not yet paid for - and she predicted that metric will rise over the next year.

"We signed four multi-billion-dollar contracts with three different customers in Q1," said Catz.

"This resulted in RPO contract backlog increasing 359 percent to $455 billion. It was an astonishing quarter - and demand for Oracle Cloud Infrastructure continues to build. Over the next few months, we expect to sign up several additional multi-billion-dollar customers and RPO is likely to exceed half a trillion dollars."

Oracle will give more details on those deals soon, she said, but did predict that current projects on Oracle Cloud Infrastructure will see its revenue grow from $18 billion this year to $144 billion by 2031.

Oracle's Larry Ellison set to become world's richest man

: Big Red's profits are flat, but its order book is phat

www.theregister.com

 

[Plutoisaplanet]

What is the penalty for not meeting the computing power usage goals on OpenAI or not providing it on Oracle's part?

Or is this another paper agreement?

The source WSJ article says nothing about it, only that it depends on whether ChatGPT has enough demand:

The OpenAI and Oracle contract, which starts in 2027, is a risky gamble for both companies. OpenAI is a money-losing startup that disclosed in June it was generating roughly $10 billion in annual revenue—less than one-fifth of the $60 billion it will have to pay on average every year. Oracle is concentrating a large chunk of its future revenue on one customer—and will likely have to take on debt to buy the AI chips needed to power the data centers.
[...]
The deal rests on the assumption ChatGPT will continue its explosive growth and be adopted by billions of people across the world, as well as major businesses and governments. While the startup’s growth has been nothing short of extraordinary, it is also facing mounting pressures including an expensive talent war, tense negotiations with Microsoft, and a for-profit restructuring that is being reviewed by regulators in two states.
[...]
Oracle is working with the data-center builder Crusoe, among others, as part of the deal. They are looking to build data centers in locations across the country, including in Wyoming, Pennsylvania, Texas, Michigan, and New Mexico, according to a person familiar with the matter.

Compared with Microsoft, Amazon and Meta, the biggest spenders of the AI age, Oracle has a far greater debt load relative to its cash holdings. The cloud company’s spending to keep up with the AI boom is already outstripping its cash flow, according to S&P Global Market Intelligence. Microsoft has a total debt to equity ratio of 32.7% compared with 427% for Oracle.

Unlike with Microsoft, it sounds like Oracle is willing to put everything on the line to meet demand.

 

[Lowhangingfruit]

None of the math here makes any sense. Only AI can understand the economics of AI

 

[Kashim]

None of the math here makes any sense. Only AI can understand the economics of AI

None of this makes sense. They can't make a profit now, they're not sure when they will make a profit, if ever. But let's keep pouring tens of billions of dollars into the black hole that is AI every year and see where it goes. I can't wait until this nonsense blows up in their face.

 

[yRaz]

None of this makes sense. They can't make a profit now, they're not sure when they will make a profit, if ever. But let's keep pouring tens of billions of dollars into the black hole that is AI every year and see where it goes. I can't wait until this nonsense blows up in their face.

Only 10s of billions? You're a little light on the pocket book there. Trillions is being spent on AI every year and it has been for the last few years.

 

[AnilD]

OpenAI committing to $300 billion is a huge gamble. This deal really shows how compute has become the new oil. Whoever controls the chips and energy needed to train these models will control the pace of AI innovation over the next decade.