Oracle is continuing its strategic push into the AI infrastructure market as it seeks to compete with major cloud providers.
The company said Monday that it has signed a cloud services agreement that will add $30 billion annually to its revenue beginning in fiscal year 2028, which begins June 1, 2027. The customer has yet to be named, but the commitment could ultimately comprise a quarter to a third of Oracle’s revenues in FY2028, based on its most recent fiscal year revenue of $57.4 billion.
“This is a mega win for Oracle and further propels them towards evening the playing field with the big three hyperscalers: Azure, AWS, and GCP,” said Scott Bickley, advisory fellow at Info-Tech Research Group.
Oracle’s continued push into AI and infrastructure
According to a Securities and Exchange Commission (SEC) filing, Oracle CEO Safra Catz met today with other company heads to report: “Our multi-cloud database revenue continues to grow at over 100%, and we signed multiple large cloud services agreements including one that is expected to contribute more than $30 billion in annual revenue starting in FY28.”
While the customer behind the $30 billion commitment has yet to be named, analysts speculate that it is likely a hyperscaler deal serving the Asia region, “possibly a ByteDance or perhaps OpenAI, or of a similar magnitude,” as Bickley put it.
Oracle Cloud Infrastructure (OCI) is on an “incredible trajectory,” noted Matt Kimball, VP and principal analyst for data center storage and compute at Moor Insights & Strategy
He pointed out that, in addition to its continued growth, OCI has a remaining performance obligation (RPO) — total future revenue expected from contracts not yet reported as revenue — of $138 billion, a 41% increase, year over year.
The company is benefiting from the immense demand for cloud computing largely driven by AI models. While traditionally an enterprise resource planning (ERP) company, Oracle launched OCI in 2016 and has been strategically investing in AI and data center infrastructure that can support gigawatts of capacity.
Notably, it is a partner in the $500 billion SoftBank-backed Stargate project, along with OpenAI, Arm, Microsoft, and Nvidia, that will build out data center infrastructure in the US. Along with that, the company is reportedly spending about $40 billion on Nvidia chips for a massive new data center in Abilene, Texas, that will serve as Stargate’s first location in the country.
Further, the company has signaled its plans to significantly increase its investment in Abu Dhabi to grow out its cloud and AI offerings in the UAE; has partnered with IBM to advance agentic AI; has launched more than 50 genAI use cases with Cohere; and is a key provider for ByteDance, which has said it plans to invest $20 billion in global cloud infrastructure this year, notably in Johor, Malaysia.
Ellison’s plan: dominate the cloud world
CTO and co-founder Larry Ellison announced in a recent earnings call Oracle’s intent to become No. 1 in cloud databases, cloud applications, and the construction and operation of cloud data centers. He said Oracle is uniquely positioned because it has so much enterprise data stored in its databases. He also highlighted the company’s flexible multi-cloud strategy and said that the latest version of its database, Oracle 23ai, is specifically tailored to the needs of AI workloads.
Oracle 23ai is “the only database that can make all customer data instantly available to all popular AI models while fully preserving customer privacy,” Ellison claimed.
Other Oracle customers need not be concerned
Oracle has taken a “prudent, fiscally responsible approach” to the buildout of its infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) cloud infrastructure, as it only spends capital after customer deals are signed, Bickley noted.
“This enables Oracle to avoid expensive debt financing while subsequently locking in customer revenue over multi-year terms,” he said. He pointed out that the $30 billion deal will not generate revenue until fiscal 2028, which implies a “long runway for the buildout of the underlying data centers, power supply, and specialized hardware required.”
But while a single deal of this magnitude is “monumental,” it should not materially affect Oracle’s ability to serve existing customers, as those data centers are either built or in the process of being developed, he noted.
Kimball of Moor Insights & Strategy agreed, saying OCI is managing its business well. While he said he would normally be concerned with “what would appear to be a lopsided revenue stream,” Oracle is expanding to meet the broader market rather than focusing on a single customer.
Oracle and OCI understand how to serve a set of diverse customers, even as some of those might draw significant resources, he added. “If this were a startup, or perhaps a neo-cloud, I would be concerned with the ability to balance the whale of a customer and its needs against those of the thousands of smaller organizations,” said Kimball. “However, OCI and Oracle don’t concern me in any way whatsoever.”
Analysts also don’t see cause for alarm in potential Oracle dominance in the space, rather the contrary. “This deal demonstrates that the AI revolution is here to stay, and there seems to be enough business for multiple winners in the space,” said Bickley.
Source:: Network World