OpenAI has signed a contract to purchase computing power worth $300 billion from Oracle over the next approximately five years. The agreement will take effect in 2027, with a required power capacity of 4.5 GW, equivalent to the electricity generation of two Hoover Dams, sufficient to supply power to about 4 million households.
OpenAI has reached a landmark agreement with Oracle valued at up to $300 billion.
On September 10, it was reported that OpenAI has signed a contract to purchase $300 billion worth of computing power from Oracle over the next approximately five years. The agreement will take effect in 2027, with the required 4.5GW of power capacity equivalent to the generation capacity of two Hoover Dams, sufficient to supply electricity to about 4 million households. Previously, the company's CEO Safra Catz revealed during an earnings call that the company added $317 billion in remaining performance obligations in the first quarter of this fiscal year, bringing the total to $455 billion, a year-on-year increase of 359%.
For OpenAI, this represents a bold gamble on its future growth; for Oracle, it means concentrating a significant portion of future revenues on a single client, presenting a severe test for both parties' execution capabilities and market prospects.
Oracle's performance and stock price surge.
Following the disclosure that it added $317 billion in future contract revenue for its latest fiscal quarter (ending August 31), Oracle's stock price surged by 42% on Wednesday.
CEO Safra Catz indicated to analysts that the company signed contracts with three different clients during the quarter. She emphasized that significant cloud contracts have already been signed with major players in the AI sector, including OpenAI, xAI, Meta, NVIDIA, AMD, and many other companies. The surge in stock price has increased Oracle Chairman Larry Ellison's wealth by over $100 billion, bringing his net worth close to $400 billion, placing him among the world's richest individuals alongside Elon Musk.
In fact, Oracle first hinted at this deal in a document from June, when it disclosed that the company had reached a cloud service agreement that would generate over $30 billion in annual revenue starting in 2027.
A high-risk 'gamble'
This contract, which will take effect in 2027, represents a high-risk gamble for both OpenAI and Oracle.
OpenAI is a still unprofitable startup, with an annualized revenue of approximately $10 billion disclosed in June, which is significantly lower than the $60 billion it is required to pay on average each year under this agreement.
The success of this deal is entirely predicated on the assumption that ChatGPT can maintain its explosive growth and be widely adopted by billions of users globally, as well as by major enterprises and governments.
Although OpenAI's growth has been remarkable, it is also facing increasing pressures, including an expensive talent war, tense negotiations over its partnership with Microsoft, and a for-profit restructuring currently under review by regulators in two states.
For Oracle, the risk lies in betting future substantial revenues on a single client, and the company may need to resort to borrowing to acquire the large number of AI chips necessary to support these data centers.
OpenAI's Computing Power Dilemma
The primary reason OpenAI is pursuing this large-scale transaction is due to a severe shortage of computing power, which is hindering the launch of its products and the development of new AI models. For many years, OpenAI has relied exclusively on Microsoft, one of its largest supporters, for its computing resources; however, it has been reported that the company recently received a waiver to seek new suppliers due to disappointment over the supply shortage.
To address the computing power bottleneck, OpenAI had attempted to initiate a new data center project called "Interstellar Gateway" in collaboration with its supporter SoftBank, but the project has made slow progress.
Subsequently, OpenAI stated that "Interstellar Gateway" is the brand for all its data center operations and will consider this deal with Oracle as part of the "Interstellar Gateway" project.
This agreement with Oracle marks a critical step for OpenAI in securing the supply of computing power necessary for its future AI landscape.
Editor/joryn
