Oracle has signed what may be the largest-ever cloud contract with OpenAI. How could that shake up the cloud and genAI landscape?
A single $300 billion contract has seemingly transformed Oracle from a traditional ERP and database vendor into a cloud computing powerhouse.
The company has signed a five-year computing power commitment with OpenAI, contributing to a reported 359% surge in future contract revenue this quarter. That $317 billion increase could put the company’s 2030 cloud revenue at around $1 trillion.
It is one of the largest cloud contracts ever signed, and in addition to the eye-popping, market-roiling numbers, it has enterprise leaders scrambling to understand what it means for their own technology strategies and stacks.
“There’s digesting to figure out ‘how does this impact my bottom line, my operations?’” said Matt Kimball, VP and principal analyst with Moor Insights and Strategy. “Then there’s digesting because, ‘Man these guys are getting so big, where does this put them as a cloud player and how big are they going to get?’”
Won’t turn its back on existing customers
Deals like this, and particularly of this magnitude, can generate a wave of ripple effect questions. Should cloud buyers, for instance, be excited because the market is now a big 4, with Oracle Cloud Infrastructure (OCI) joining AWS, Azure, and Google Cloud, or panicked because one client is buying up that much capacity?
These questions are “perfectly normal and rational,” said Moor’s Kimball, but he added that he doesn’t think buyers should be terribly concerned.
“OCI has a plan around its datacenter and infrastructure build-out plans that it executes against quite effectively,” he said. “In many ways, the fact that an OpenAI would choose to work with OCI should bring some confidence to these customers, as it trusts Oracle’s ability to meet the needs of all customers.”
He also emphasized that OCI takes “painful steps” to make sure that each datacenter is exactly the same as the others. This helps ensure that customers have the same experience, regardless of the region their workloads are running in.
“I don’t have any doubts that the leadership at OCI is ensuring that all of its customers’ needs are being met, regardless of their size,” he said. “Further, I don’t believe it will sacrifice the experience of any one customer to meet the needs of another customer.”
Sure, customers can (and do) complain about Oracle’s costs and licensing fees and terms, but they shouldn’t about delivery, Kimball emphasized. They are “very measured, very execution focused, very driven” to deliver the same experience for every customer across every region.
“They’ve been living in this space more than most companies have been around,” he said. “When they deliver a product out into market, they deliver a full-functioning product.”
All told, when considering cloud environments, buyers have many factors to consider: the cost of moving data, workloads, hybrid clouds, security, residency, locality, and overall trust in the company. But when it comes to OCI, AWS, Azure, or Google, they needn’t worry about support from a computational perspective, Kimball noted.
“They are so far ahead in terms of capacity planning, capacity deployment, regional coverage, that should not be a concern,” he said.
Oracle’s AI bet benefits traditional customers
“This actually creates a platform for Oracle customers to essentially expand into their GPU capacity, assuming there is spare capacity available and the model scaling continues,” he said.
Chirag Dekate, Gartner VP analyst, agreed. “Concerned cloud buyers should actually consider the ground-breaking deal a “net-net win,” he said.
On the other hand, Oracle Fusion, ERP, and database customers may be concerned that Oracle will lose interest in its applications business in favor of cloud infrastructure. But these are Oracle’s bread and butter, and significant contributors to its bottom line, the analysts noted.
Based on this week’s earnings call, it’s “very, very clear that Oracle continues to remain grounded in its enterprise delivery,” said Dekate. That is a “key growth lever” and Oracle will continue to modernize and innovate its databases and ERP platforms, he said.
“That is not something that CIOs should worry about,” he said. “If anything, customers will likely benefit from the potential fusion of these techniques, and even more advanced capabilities on the database and ERP layer.”
It should also be noted that some are skeptical that the deal will even come to fruition, because OpenAI is still yet to turn a profit. To pay for the deal, it would have to generate, at a minimum, $60 billion in revenues a year — six times its currently reported annual revenue.
OpenAI’s big bet on Oracle
Beyond any technical concerns, the deal raises many other questions around why OpenAI specifically chose Oracle.
Kimball noted that both companies “live and die” by data. Oracle for its entire life has been a data management platform, building its own cloud infrastructure “literally from the ground up.” Other legacy data center providers that emerged before the cloud had to adapt to it.
“They do an amazing job of serving the needs of enterprises,” said Kimball. “This company gets how to make data work and how to make data move and how to process data faster than others.”
Dekate agreed that Oracle has taken a unique tack with its cloud strategy, especially since launching OCI in 2016.
The company is leading with its engineering skills, capability, fast delivery, and “extremely reliable, high-end infrastructure stacks,” he said, as well as with strategic partnerships with Microsoft and Google to integrate Vertex and Gemini into Oracle.
“Oracle over the last two decades has shaped a unique and differentiated cloud strategy where they are strategically positioning themselves as engineering innovators in a fairly limited cloud ecosystem,” said Dekate. “They’re not necessarily trying to be a fully-integrated full-stack, but a highly innovative AI cloud stack with differentiation at the infrastructure layer.”
