Oracle, OpenAI Sign Massive $300 Billion Cloud Computing Deal
The majority of new revenue revealed by Oracle will come from OpenAI deal, sources say
- OpenAI signed a deal to purchase $300 billion in computing power from Oracle over five years, starting in 2027.
- Oracle’s stock surged after revealing a $317 billion addition to future contract revenue, increasing Larry Ellison’s wealth.
- The OpenAI and Oracle contract depends on ChatGPT’s continued growth, but OpenAI faces talent wars and regulatory reviews.
OpenAI signed a contract to purchase $300 billion in computing power over roughly five years from Oracle ORCL 35.78%increase; green up pointing triangle, people familiar with the matter said, a massive commitment that far outstrips the startup’s current revenue.
The deal is one of the largest cloud contracts ever signed, reflecting how spending on AI data centers is hitting new highs despite mounting concerns over a potential bubble. It will require 4.5 gigawatts of capacity, roughly comparable to the power produced by more than two Hoover Dams or the amount consumed by about four million homes.
Oracle shares initially surged by 42% on Wednesday after the cloud company revealed it added $317 billion in future contract revenue during its latest quarter that ended in Aug. 31. Chief Executive Safra Catz told analysts that it had signed contracts with three different customers during the quarter.
The share price surge increased Oracle Chairman Larry Ellison’s wealth by more than $100 billion, pushing him into the range of Elon Musk as the world’s richest person, with a net worth of almost $400 billion.
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.
Oracle gave a first hint of the deal when it disclosed in a June filing it had struck a cloud services agreement that would give it more than $30 billion in annual revenue starting in 2027. The cloud giant will receive more yearly revenue from OpenAI over time as more data centers come online.
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.
OpenAI is trying to reduce a computing shortage that is hampering the roll out of its products and constraining progress building new AI models. The startup tried to solve the problem by launching a new data-center venture called Stargate with one of its largest backers, SoftBank, but that project has gotten off to a slow start. OpenAI has since said that Stargate is the brand for all of its data-center efforts and considers the Oracle deal a part of Stargate.
OpenAI for years relied on Microsoft to exclusively provide its computing power, but recently received waivers allowing it to find new providers after growing frustrated with supply shortages.