• Oracle’s neutrality in AI has paid off.
• However, its long-term success in AI faces challenges from growing competition.

Oracle was once seen as one of the less-favoured giants in the cloud market. As a pioneering IT company with a specialisation in databases, it reportedly missed the trend that transformed the global IT landscape and has in recent years struggled to keep pace with the shift to general-purpose cloud computing.

However, the growing demand for AI has revitalised Oracle, positioning it as a key player in the cloud infrastructure market, particularly finding favour in AI development. As reported by The Wall Street Journal, Oracle’s stock prices have risen healthily in recent months, outperforming major rivals like Amazon, Google, and Microsoft.

Oracle, a company known for its relational database software, is emerging as an appealing cloud solution for companies like OpenAI, whose AI models require massive computational power. Oracle’s stock has increased 34% in value since the beginning of the year, at least in part as it steps up to support better known names in AI. This return for a company that was once thought to be a pure-play database company of the pre-cloud age is nothing short of amazing.

Oracle’s neutrality: The key to trust

Despite its late entry into the cloud computing market, Oracle has capitalised on its timing. Many of its 162 data centres were recently built, so they are better equipped to handle the hardware demands of AI model training.

Oracle’s strategy of not directly competing with AI developers by creating its own large-scale models has resulted in an appealingly neutral platform. This neutrality is a major reason why industry heavyweights like Microsoft, Google, and Amazon allow Oracle databases to run on Oracle real-estate. Notably, Microsoft uses Oracle’s infrastructure to power its Bing AI chatbot, demonstrating the amount of trust in Oracle’s cloud capabilities and likely a nod of respect to the industry stalwart.

Oracle’s partnerships include other major AI providers like xAI and Nvidia. Larry Ellison, the company’s co-founder, has played an important role in forging these collaborations, thanks partly to his personal relationships with Elon Musk and Jensen Huang, the CEOs of xAI and Nvidia. These partnerships have established Oracle as a prominent player in the AI cloud market, resulting in impressive financial returns. Oracle’s cloud infrastructure revenue increased by 45% in its most recent earnings release, exceeding analysts’ estimates and further boosting the company’s stock price.

Ellison, now 80 and still actively involved in the company he founded, is confident in Oracle’s ability to continue building world-class data centres and maintaining its strong position in the AI sector. Oracle’s recent success has attracted significant investor attention, with experts predicting that AI-related revenues will soon account for more than half of the company’s cloud business.

One of the reasons for Oracle’s success with clients is its focused approach to cloud services. When people think of cloud providers, they typically consider the industry’s biggest names with their fingers in many pies. Oracle, however, has carved out a niche by focusing almost exclusively on cloud-based services, avoiding the push for additional offerings or proprietary AI of its own devising. For AI startups like Cohere, which require simple, no-frills cloud infrastructure, Oracle’s practical and straightforward products are particularly attractive. Oracle delivers precisely what its clients need, without unnecessary complexities and, of course, without posing as a competitive threat in the AI space.

Ellison’s influence in Silicon Valley remains strong. He has kept Oracle relevant in a fiercely competitive cloud computing environment. His networking abilities were on full display when he struck a deal with Musk and Huang over dinner at Nobu, prompting Nvidia to select Oracle as a host for its cloud offering. Nvidia’s sophisticated graphics processing units (GPUs), which are necessary for AI model training, are in great demand, and Oracle’s cloud platform has become an important component of Nvidia’s strategy.

Risks looming for Oracle’s AI boom

However, Oracle’s AI boom comes with potential risks. Some analysts caution that the influx of AI business could be temporary. One of Oracle’s important clients, xAI, is already establishing its own data centre to lessen its reliance on third-party clouds for future AI model training purposes. Training AI models requires a significant amount of resources, yet it is typically a one-time operation. After the models have been trained, many businesses may decide to shift their operations to larger cloud providers that offer a wider range of services, better to provide ancillary user-focused services at the point of inference.

That is evident in the case of OpenAI, which partnered with Oracle to conduct some of its AI training, even as it continues to host all its models on Microsoft’s cloud. Therefore, Oracle may face difficulties in retaining a growing number of its clients over the long term.

Nevertheless, Ellison is confident and believes that the company’s AI training will remain in demand. Oracle hopes that its relationships with AI startups and long-term database clients will continue to keep the Oracle stack a viable option as and when they explore AI.

Oracle faces significant competition from larger cloud providers that are quickly growing their AI infrastructure. As these corporations construct more data centres, the excess demand that has benefited Oracle may diminish. Maintaining a technological advantage will necessitate significant capital investment, raising doubts about Oracle’s ability to sustain its AI hosting presence.

Oracle’s resurgence in the AI-powered cloud sector is spectacular, but it remains to be seen whether this momentum will last in the long run. As of now, the company is enjoying its well-deserved moment of a second bite at the IT cherry.