OpenAI and Oracle shocked the market this week with a surprise $300 billion, five-year deal, part of a new business transfer that sent the cloud provider’s stock soaring. But maybe the market shouldn’t have been surprised. The deal is a reminder that despite Oracle’s legacy status, the company still has a big role to play in AI infrastructure.
On Openai’s part, the agreement was more revealing than the lack of details suggests. First, the startup’s willingness to pay so much for computing provides a measure of the startup’s appetite — even if it’s not clear where the electricity to power said computing will come from or how it will pay for it.
Chirag DeKate, a vice president at research firm Gartner, told TechCrunch that it’s clear why both parties are interested in the deal. It makes sense for Openai to work with multiple infrastructure providers, he noted. It also diversifies the company’s infrastructure — spreading risk across multiple cloud providers — and gives Openai a scaling advantage over its competitors.
“Openai seems to be building one of the largest global AI supercomputing foundations at extreme scale, scaling up where needed,” Dekate said. “It’s quite unique. It’s probably a model of what a model ecosystem should look like.”
Some industry observers expressed surprise that Oracle was involved, citing the company’s diminished role in the AI boom compared to cloud rivals like Google, Microsoft Azure and AWS. But Dekate says observers shouldn’t be so surprised: Oracle has worked with hyperscalers before and provides the infrastructure for TikTok’s sizable U.S. business.
“Over the decades, they actually built core infrastructure capabilities that allowed them to deliver extreme scale and performance as a core part of their cloud infrastructure,” Decate said.
Payment and power
But even as the stock market celebrates the deal, key details are missing and questions remain about capacity and payments.
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Openai has made a series of infrastructure investment announcements over the past year, each with an eye-popping price tag. Openai has committed to spending about $60 billion a year on compute from Oracle and $10 billion to develop custom AI chips with Broadcom.
Meanwhile, Openai said in June that it had reached annual recurring revenue of $10 billion, up from about $5.5 billion last year. That figure includes revenue from the company’s consumer products, Chatgpt business products, and its API. And while its CEO Sam Altman has painted a rosy picture of its future prospects in terms of subscribers, products, and revenue, the company is burning through billions of dollars in cash every year.
Power is another issue, or more precisely, if companies plan to obtain the energy needed to power this level of computing.
Industry observers have predicted that a natural gas boost is imminent, although solar and batteries are arguably better at delivering power faster and at lower cost in many markets. Tech companies are also betting on nuclear.
Despite the market-leading headlines, OpenAI’s projected energy impact on growth isn’t entirely unexpected. Data centers are expected to consume 14% of all U.S. electricity by 2040, according to a report published yesterday by Rhodium Group.
Compute has always been a constraint for AI companies, so much so that investors have bought thousands of Nvidia chips to make sure their startups have the power they need. Andreessen Horowitz reportedly bought over 20,000 GPUs, while Nat Friedman and Daniel Gross rented access to a 4,000-GPU cluster (though perhaps Meta now owns it ).
But computing is worthless without energy. To ensure their data centers still have juice, big tech companies have snapped up solar farms, bought nuclear power plants, and inked deals with geothermal startups.
Openai has been relatively quiet on this front so far. CEO Sam Altman has made several notable bets in the energy sector, including Oklo, Helion, and Exovate , but the company itself hasn’t poured money into the space like Google, Meta, or Amazon.
With a 4.5 gigawatt compute deal, that may soon change.
The company could play an indirect role by paying Oracle to handle the physical infrastructure — something it has extensive experience with — just as Altman invested in startups aligned with OpenAI’s future power needs. That would leave the company “Asset Light,” something that will no doubt please its investors and help keep its valuation in line with other software-focused AI startups, rather than legacy tech firms that are burdened with pricy infrastructure.
