Shares in Oracle, an established US technology giant, surged as much as 43% on Wednesday local time, sending founder Larry Ellison soaring and briefly overtaking musk to become the world’s richest man. Underpinning all of this is the cloud computing services in its latest financial disclosure of the significant growth in earnings expectations. Artificial Intelligence Company OpenAI has signed a contract with Oracle Corporation to buy $300bn worth of computing power over about five years, the Wall Street Journal said, citing people familiar with the matter, that figure accounted for nearly 95 percent of Oracle’s $317 billion increase in future contract revenue in its most recent quarter.
Oracle shares surged Wednesday, closing at a record high of $328, giving the company a market capitalisation of $922.2 bn. At the peak of Oracle’s intraday share price on Wednesday, chairman Larry Ellison’s wealth increased by more than $100bn and his personal fortune reached nearly $400bn, the BBC reported, to snatch the world’s richest man from Elon Musk. But after the day’s close, Oracle’s share price pared some of its gains and musk returned the title of World’s richest man.
According to the Wall Street Journal, completing the oracle-OpenAI deal will require 4.5 gigawatts of power capacity, roughly equivalent to more than two Hoover dams, about 4m homes use the same amount of electricity. The contract, one of the largest ever for cloud computing, reflects record spending on artificial intelligence data centres in spite of growing fears of a potential bubble.
But the Wall Street Journal reported that the OpenAI-oracle contract would start at the 2027, a high-risk bet for both companies. That’s because OpenAI, a money-losing start-up, disclosed in June that its annual revenue was about $10 billion, less than a fifth of the $60 billion it must spend annually on average. Oracle, on the other hand, is concentrating a large chunk of its future revenues on one client and may well have to borrow to buy AI chips to support data centres. The problem for Oracle is that it is overburdened with debt compared with rivals such as Microsoft, Amazon and Meta, and spending to keep up with the AI boom has outstripped the company’s cash inflows.
Further analysis of the report said the deal was based on the assumption that OpenAI’s ChatGPT would continue to explode and be adopted by billions of people and major corporations and governments around the world. While the growth of OpenAI is remarkable, it is also under increasing pressure, including an expensive talent war and tense negotiations with Microsoft, and for-profit restructuring initiatives that are under review by two state regulators.