Like a Draw Four card in Uno, Oracle’s monumental deal with OpenAI is expected to shake things up—and not just for Oracle’s reputation, but for the greater tech ecosystem, according to industry experts.
On Sept. 10, the Wall Street Journal reported OpenAI had signed a contract with Oracle, agreeing to purchase $300 billion worth of computing power over approximately five years. The contract is slated to come into effect in 2027.
That’s a big deal…literally. The Wall Street Journal said the OpenAI–Oracle deal is one of the largest cloud contracts signed to date, requiring 4.5 gigawatts of data center power capacity. Oracle shares jumped more than 35% following news of the deal.
However, Anetac security platform co-founder and CEO Timothy Eades argued the deal is actually not as expensive for Oracle as it seems. That’s because Eades said the arrangement will give the data giant a leg up in the industry’s trek towards deglobalization and sovereign cloud infrastructure. Gartner estimates 65% of governments worldwide will have some form of digital sovereignty by 2028.
Eades said the recent deal positions Oracle well for the AI era, a much-needed move given that the company had “missed out on some really big waves.”
“Part of it’s defensive,” Eades said. “Imagine if they didn’t do it right. I mean, they were left out of the hyperscaler world. Imagine if they weren’t involved in the AI world.”
Eades said that the deal also will award Oracle additional relevancy, transforming its identity beyond a “40-year-old database company.”
“This is a cheap deal…If you look at it in a 10 year time frame, holy cow,” Eades said.
Merge ahead. Shishir Shrivastava, a practice associate director at TEKsystems Global Services, said the deal signifies a wave of consolidation within the AI infrastructure industry, similar to what occurred during the dot-com bubble. He referenced Nvidia’s $5 billion stake in Intel, announced on Sept. 18, as another indicator of this.
“For the next few years, that’s what we’ll see,” Shrivastava, a former Oracle employee, said. He added that the combination of Oracle’s flagship database product, its enterprise applications, and its infrastructure will allow it to cater to large enterprises.
“With the advent of cloud, all they have to do is just take all of that infrastructure and the muscle in the power and boost it to the cloud so that they can provide that AI optimized ecosystem,” Shrivastava said.
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Eades said deals on such a large scale will likely continue moving forward.
“This is just the start of something massive,” he said.
Three’s company. Some may be wondering what the monumental deal means for the Big Three. Shrivastava said the recent deal will help catapult Oracle’s reputation in the cloud computing industry to the heights of the hyperscaler trio.
“Sooner or later, you will see that among AWS, and Microsoft, and Google, Oracle’s name will pop up as well quite frequently,” Shrivastava said.
Eades, however, predicts the OpenAI–Oracle deal won’t shake things up too much for the hyperscalers because the industry is currently in the “first innings of AI” and companies likely will establish deals with multiple cloud providers.
“It’s not like musical chairs where everybody’s going to find one at the last minute, and this is your lock to that one chair,” Eades said. “Right now, people are trying to circle around and find the right chair that’s going to be relevant for them on the product suite that they have and the markets that they see.”
On the flip side. While the $300 billion deal is regarded as a win for Oracle by some, others remain skeptical. Following the news of the agreement and the market’s subsequent reaction, discussions of an oncoming AI bubble burst gained momentum.
“I don’t think it’s a bubble, but if it is a bubble, then deals like these are put as a risk,” Shrivastava said.
Last week, Moody’s ratings highlighted the counterparty risk (i.e., the risk that a party will not fulfill its end of the bargain) associated with the deal. Moody’s does not mention OpenAI by name in the report, and disclosed its risk assessment is “subjective at best,” given their lack of financial information on the unnamed party.
Moody’s report also acknowledged Oracle’s high debt standing and how it could impact the company following the pending deal: “Oracle’s AI infrastructure business has tremendous potential in our view, but we note that this exponential growth and the already high debt burden at Oracle could result in an extended period of high leverage and negative cash flow.”