OpenAI and Oracle astonished the markets with an unexpected 300 billion, five-year contract, part of a wave of fresh ventures that sent the cloud provider’s stock soaring. But perhaps the markets shouldn’t have been shocked. The arrangement is a reminder that, despite Oracle’s historic status, the firm still plays a significant role in AI systems.
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OpenAI Agreement Insights
On the OpenAI side, the contract was more revealing than the absence of specifics suggests. For instance, the startup’s readiness to invest so heavily in compute offers a gauge of the company’s appetite, even if it’s uncertain where the electricity to power said compute originates or how it will cover the cost.
Expert Opinions On The Deal
Chirag Dekate, a vice president at analytics company Gartner, told TechCrunch it’s evident why both parties were intrigued by this deal. It makes sense for OpenAI to collaborate with multiple infrastructure providers, he mentioned. It also diversifies the company’s systems, spreading risk among various cloud suppliers, and grants OpenAI a scaling benefit versus competitors.
OpenAI seems to be constructing one of the most complete global AI supercomputing foundations for large-scale inference expansion, where suitable, Dekate stated. This is rather exceptional and probably illustrative of what a model ecosystem should resemble.
Oracle’s Role In The AI Boom
Some industry analysts expressed astonishment that Oracle participated, highlighting the company’s reduced position in the AI surge compared to cloud competitors such as Google, Microsoft Azure, and AWS. But Dekate asserts observers shouldn’t be so startled: Oracle has collaborated with hyperscalers before and supports the infrastructure for TikTok’s significant U.S. operations.
Over the decades, they genuinely built fundamental infrastructure capacities that allowed them to deliver immense scale and performance as a central part of their cloud ecosystem, Dekate added.
Payment And Power Considerations
Even as the stock market celebrates the contract, key details remain unclear, and questions about energy and payments persist. OpenAI has issued multiple infrastructure investment declarations over the past year, each with an eye-popping cost. The company has pledged around 60 billion a year for compute from Oracle and 10 billion to develop bespoke AI chips with Broadcom.
Meanwhile, OpenAI indicated in June that it reached 10 billion in yearly recurring revenue, rising from roughly 5.5 billion last year. That sum includes income from the company’s consumer applications, ChatGPT enterprise products, and its API. Although CEO Sam Altman has depicted a positive outlook regarding subscribers, products, and revenue, the firm is expending billions of dollars annually.
Power remains a central issue, specifically where the companies intend to obtain the energy required to operate this scale of computing. Industry experts have predicted a near-term lift for natural gas, though solar and batteries are arguably better suited to supply energy sooner and at reduced cost in many regions. Tech corporations are also placing significant bets on nuclear.
Despite market-moving headlines, the energy influence of OpenAI’s anticipated expansion is not entirely unforeseen. Data centers are expected to consume 14% of all electricity in the U.S. by 2040, according to a report Rhodium Group released yesterday.
Compute And Energy Challenges
Compute has historically been a limitation for AI firms, so much so that investors have acquired thousands of Nvidia chips to guarantee their startups have access to the electricity they require. Andreessen Horowitz reportedly bought over 20,000 GPUs, while Nat Friedman and Daniel Gross rented a 4,000-GPU cluster, though possibly Meta owns that now.
Compute is ineffective without energy. To ensure their data hubs remain powered, major tech corporations have been acquiring solar facilities, purchasing nuclear plants, and arranging contracts with geothermal companies.
So far, OpenAI has remained relatively silent on that aspect. CEO Sam Altman has made several notable investments in the energy sector, including Oklo, Helion, and Exowatt, but the company itself hasn’t committed significant capital like Google, Meta, or Amazon.
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With a 4.5 gigawatt compute contract, that may soon evolve. The firm may assume an indirect position, paying Oracle to manage the physical infrastructure, an area it has extensive experience in, while Altman invests in startups aligned with OpenAI’s prospective energy requirements.
This approach will keep the company asset-light, a strategy likely to satisfy investors and maintain valuation in line with other software-focused AI firms rather than legacy technology companies burdened with costly infrastructure.