Oracle shares booming – a trillion-dollar question

in approx. 400 words

 

In Data Centers - a Revolutionary Era (May 2024), I discussed the novel era of hyperscalers dominating the cloud computing market, Microsoft Azure , Amazon Web Services (AWS) and Google Cloud , hogging a combined 65% share

Oracle has been a late-comer in the cloud race; its focus on relational databases and aggressive defense of its world #2 position in backoffice Enterprise Resource Planning software (ERP) behind Germany’s SAP seemed rock-solid – until it wasn’t

By early 2010’s, responding to the competitive database capabilities of Azure and AWS which were putting its data moat at risk, Oracle transitioned to the cloud for its database and ERP applications, as did its competitor SAP

To build the computing infrastructure to serve ERP customers around the world, capital expenditures (capex) at both firms rose from an annual $1 billion to approx. $2 billion in the years after 2015 but SAP flinched by 2018

Rather than to pull-back on an ERP offering supported by the hyperscalers’ infrastructure (as SAP opted) or to limit its computing capex to support its own software, Oracle went all in with a vertically integrated cloud offering, in competition with Azure and AWS

The gamble taken by Oracle has proven decisive : there was no way back

With datacenter partners Digital Reality and QTS, Mr. Ellison did not waver, although outplayed by the hyperscalers, and a late start made it hard to grow beyond the firm’s established client base

 However, by 2023, the cards were reshuffled again.... for Oracle and everyone else

 

The rise of ChatGPT, growing AI contracts and strong hyperscaler business allowed data centers to demand 10-year contracts (up from 2/3-year contracts) for large-scale capacity

Further constraining Oracle’s leasing options, hyperscalers such as Microsoft started pre-leasing (in 2023/2024) all the preferred sites close to the end customers

 

Mr. Ellison, projecting even faster exponential demand growth, gambled again

• by becoming the single largest lessor of datacenter capacity throughout 2024 at an annual expense of more than $3 billion, a cost close to the annual revenue of the firm’s previous year’s cloud business, with the risk of overcommitting to anticipated customer growth
• by broadening his infrastructure options with new entrants in the datacenter leasing industry from the crypto-mining world, still lacking the credibility to secure long-term hyperscaler trust

 

The launch of the Gigawatt-scale site in Texas, a contract (est. at $15-20 billion) signed with lessor (and crypto-miner) Crusoe, and the commitment of OpenAI to buy all the site’s future 800 MW computing capacity rockets Oracle in pole position on Stargate's map

Oracle reaches the apex in the emerging AI industry - with all the benefits of its close relationship with OpenAI and all the doubts surrounding Generative AI's ambitions

But then, Mr. Ellison has been walking a tight rope before - are Oracle investors ready for the challenge ?

 

"The 30 or so AI stocks in S&P 500 have a combined 43% of market cap. Even more compelling, these names have driven almost all of the returns and most of earnings growth since ChatGPT / Nov 2022"  (JPM)

 

For information on Oracle's history, my summary relied on the June 2025 SemiAnalysis report 'How Oracle is winning the AI compute market'