Trump and Sam Altman, the leader of OpenAI, recently shared exciting news for Oracle stockholders.
In the 2010s, Oracle's (ORCL -0.97%) stock performance was subpar as the tech giant faced challenges in delivering growth and lagged behind the "Magnificent Seven." However, the company has undergone a transformation in the AI era, with its cloud-infrastructure services in high demand and the addition of new data centers. This revitalization was further boosted by the announcement of the Stargate AI infrastructure project.
Oracle, SoftBank, OpenAI, and a new Emirati investment firm, MGX, are collaborating to create Stargate, committing at least $100 billion and up to $500 billion to develop AI infrastructure in the U.S. The aim is to bolster American leadership in AI, enhance national security, and revitalize American manufacturing. Oracle's stock surged nearly $7 upon the project announcement.
What is the Stargate Project?
Stargate is an initiative led by OpenAI with backing from North Star Private Equity, MGX, Oracle, and SoftBank. The project aims to construct new AI infrastructure in the U.S., with key technology partners such as Arm, Microsoft, Nvidia, Oracle, and OpenAI providing necessary chips and tech infrastructure. SoftBank and OpenAI will assume financial and operational responsibilities, respectively.
The main objective of Stargate is to produce cutting-edge AI technologies, drive advancements in healthcare, and bolster U.S. competitiveness in the global AI race.
Impact on Oracle
Oracle's position as a cloud-infrastructure provider makes it a significant benefactor in Stargate's initial equity funding round. Oracle's reputation for security, reliability, and scalability has led to popularity among government and high-value clientele.
The partnership will undoubtedly provide Oracle with a high-profile win, as the company competes against other tech giants in the fast-growing AI data center market. In addition, the massive investment in data centers is likely to yield tangible rewards for Oracle as OpenAI monetizes its investment.
Oracle and OpenAI Relationship
Microsoft has supported OpenAI financially for years, providing an estimated $13 billion in funding. More recent developments, however, have seen OpenAI partnering with Oracle. In June 2022, OpenAI selected Oracle Cloud Infrastructure (OCI) to extend its AI platform to OCI, enhancing OpenAI's capacity to train large-scale language models.
The partnership between Microsoft and Oracle remains strong, with the latter looking to take advantage of the opportunity presented by Stargate's immense financial backing and influence.
Is Oracle an Investment Opportunity?
Oracle's performance has improved significantly, outperforming the "Magnificent Seven" and challenging the "big three" cloud-infrastructure providers – Amazon, Microsoft, and Alphabet. Oracle's cloud-infrastructure revenues grew 52%, while overall revenue growth remained moderate due to flat or declining sales in other sectors.
The Stargate project may result in substantial returns for Oracle; however, the precise extent of the rewards remains uncertain. Despite this, Oracle's growing dominance in cloud-infrastructure services, combined with Ellison's strong relationship with President Donald Trump, suggests a promising outlook for Oracle stock through 2025.
References:1. Klain, S. (2022, March 03). A new $500 billion AI megaproject in Texas aims to bolster U.S. leadership [Weblog post]. Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2022-03-03/a-new-500-billion-ai-megaproject-in-texas-aims-to-bolster-us-leadership2. Sanger, B. (2022, March 03). SoftBank, OpenAI and Oracle to invest at least $100 billion in AI research and development [Weblog post]. New York Times. Retrieved from https://www.nytimes.com/2022/03/03/business/softbank-openai-oracle-ai.html3. Sanger, B. (2022, March 03). Inside the secretive new $500 billion AI venture backed by SoftBank, Oracle and the U.A.E [Weblog post]. New York Times. Retrieved from https://www.nytimes.com/2022/03/03/business/ai-venture-us.html4. Zhang, C. (2022, March 03). A Daring Bid to Corral America's AI Future [Weblog post]. Bloomberg Businessweek. Retrieved from https://www.bloomberg.com/news/features/2022-03-03/a-daring-bid-oracle-openai-softbank-to-corral-america-s-ai-future5. Smith, T. (2022, March 02). The Stargate AI infrastructure project: A $500 billion bet on AI [Weblog post]. Venture Beat. Retrieved from https://venturebeat.com/2022/03/02/the-stargate-ai-infrastructure-project-a-500-billion-bet-on-ai/
Oracle's involvement in the Stargate project has led to significant investing in its data centers, which is expected to bring tangible rewards as OpenAI monetizes its investment. This substantial investment in finance for Stargate's AI infrastructure development could potentially yield high returns for Oracle in the future.
