How boring Oracle became cool again

In the late 1970s, Larry Ellison and his co-founders launched a groundbreaking database program for the CIA, which eventually became Oracle Corporation. Fast forward nearly five decades, and the tech giant has found a new lease on life, emerging as a significant player in the booming artificial intelligence sector. Oracle's cloud computing division is now at the forefront, fulfilling the surging demand for AI-related computing power. Recently, Oracle secured a monumental partnership with OpenAI, reportedly agreeing to a $300 billion deal over the next five years for data center space. This partnership, along with Oracle's optimistic growth forecasts presented in its latest earnings report, has seen its stock price skyrocket by more than 80% in 2023, outperforming tech behemoths like Nvidia, Google, Meta, and Microsoft. This surge briefly positioned Ellison as the world’s richest individual. Industry experts, including Daniel Morgan from Synovus Trust Company, describe this moment as transformative for Oracle, likening it to Nvidia's rise as AI chip demand surpassed its gaming business. Just a year prior, Oracle struggled to find its footing, but now its strategy has received significant validation. Further elevating its profile, Oracle is in talks regarding the potential transfer of TikTok's U.S. operations to an American company. With negotiations nearing completion, Oracle has previously been a frontrunner for the acquisition, having stored TikTok’s U.S. data since 2020 to address national security concerns. Taking control of TikTok would not only provide Oracle with access to a vast user base but also open up significant advertising revenue opportunities. Although Oracle lagged behind major cloud providers like Amazon, Google, and Microsoft, its fortunes began to change in 2022, coinciding with the public launch of ChatGPT. AI companies realized that scaling their large language models required substantial computing resources, a demand that Oracle has been positioned to meet. Morningstar analyst Luke Yang notes that Oracle's partnership with Nvidia has facilitated access to the essential AI chips needed for its expanding data center operations. During a recent earnings call, CEO Safra Catz projected that Oracle's cloud revenue could soar by 77% to $18 billion by fiscal year 2026, ultimately reaching $144 billion by 2030. This forecast is bolstered by a staggering 359% year-on-year increase in contracted future revenue, which stood at $455 billion in the most recent quarter. Analysts like Brian White consider Oracle's current situation a prime opportunity as AI-driven demand for data center capacity continues to exceed supply. Their collaboration with OpenAI has further solidified Oracle's presence in the AI landscape. Additionally, Ellison announced Oracle's involvement in a $500 billion initiative aimed at enhancing AI infrastructure in the U.S. Unlike other major data center companies, Oracle's strategy of not developing its own large language model allows it to maximize its computing capacity for rental. This positioning is advantageous for both Oracle and the broader AI ecosystem. Furthermore, Oracle's traditional database and software segments are providing steady revenue, enabling continued investments in expanding data center capabilities. However, for Oracle to sustain its ambitious growth trajectory, the ongoing demand from AI companies for additional computing resources will be crucial. Some analysts have expressed concerns that if AI adoption does not proceed as rapidly as anticipated, Oracle could face challenges due to its smaller scale compared to the leading cloud providers. "If AI growth slows, Oracle might experience a tougher impact than its larger competitors, given its relatively minor role in the overall ecosystem," Yang cautioned.