In one of the largest cloud contracts ever signed, OpenAI has inked a deal with Oracle to purchase $300 billion worth of computing power over the next five years, according to WSJ. That's close to 100 times OpenAI's 2024 total revenue, but follows earlier gigantic partnership commitments between the two companies, including Oracle signing on to the $500 billion Stargate data center plan, and plans for another joint data center project announced in July.
The contract between the two companies will begin in 2027, but even with a multi-year lead, there will be great interest in how the two companies fund the monstrous venture. OpenAI's projected 2025 revenue wouldn't even cover half of a single year's worth of payments to Oracle as part of the plan, and Oracle itself will likely need to take on substantial debt to pay for the hardware it will eventually sell on to OpenAI.
OpenAI is no stranger to operating at a loss, though, and CEO Sam Altman has even said it should be something investors expect to continue for a few more years at least. Despite being one of the premier AI companies in the world with an incredibly popular and well-known AI service in ChatGPT, OpenAI has yet to generate anything close to a profit.
That creates additional risk for Oracle, too. Although it's one of the world's largest technology firms with a total market value north of $600 billion, it holds a lot of debt and has a much smaller operating cash flow than some of the largest firms investing heavily in AI and associated infrastructure, like Amazon, Meta, and Microsoft. While those companies have operating cash flow in excess of $100 billion, Oracle's is $21.5 billion.
Despite some concerns over how OpenAI might fund such a monstrous investment, the markets reacted positively all the same, pushing up Oracle's stock value by over 43%. That in turn led to CEO Larry Ellison's personal net worth skyrocketing by over $100 billion in a single day, immediately making him the richest person in the world with a net worth just shy of $400 billion.
This move also marks a stark change for OpenAI's computing provisions. For years, it relied exclusively on Microsoft's Azure cloud platform to power its services, but lately it's been embroiled in discussions with Microsoft about leveraging other cloud platforms for associated services.
To provide OpenAI with all the computing power it needs, Oracle is set to build new data centers in a range of locations across the United States. WSJ reports that Wyoming, Pennsylvania, Texas, Michigan, and New Mexico are likely sites for new data center deployment, with Oracle relying on AI data center developer, Crusoe, to manage its expansion.
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