Oracle signs one of the largest cloud contracts in history with OpenAI - WSJ

Oracle and ChatGPT owner startup OpenAI have signed a $300 billion cloud computing deal, sources told The Wall Street Journal. The five-year pact starts in 2027 and will determine much of the projected revenue Oracle announced after its quarterly report on Sept. 10, WSJ sources said. What are both sides risking by signing one of the largest cloud contracts in history?

Oracle has signed a five-year contract with OpenAI to sell $300 billion worth of computing power to the startup, The Wall Street Journal reports, citing sources. The contract comes into effect in 2027. It has become one of the largest in cloud computing and reflects how spending on data centers is reaching new highs despite fears of an AI bubble, the newspaper stresses.

Oracle first hinted at the deal in June when it disclosed in its filing, without disclosing the customer, a cloud services agreement that is expected to generate more than $30 billion in annual revenue starting in 2027. Over time, the company will generate more and more revenue from OpenAI as it launches new data centers. The vast majority of the $144 billion in new revenue Oracle is projecting by 2030 is tied specifically to the OpenAI deal, the WSJ interviewees told the WSJ.

WSJ calls the deal risky for both sides. It builds on the expectation that ChatGPT will maintain its rapid growth and become a tool for billions of users, corporations and government agencies. But for all the impressive growth, OpenAI faces serious challenges - high competition for talent, complex negotiations with Microsoft and restructuring to generate more revenue, which is being scrutinized by regulators in two states. On top of that, the deal amount is times the current revenue of ChatGPT's owner. OpenAI is a loss-making startup whose annual revenue in June was about $10 billion, while under the terms of the contract it will have to pay Oracle about $60 billion annually. Oracle, on the other hand, is making itself dependent on a single customer and will likely have to borrow to buy AI chips to power its data centers. To fulfill the contract, the parties will need 4.5 gigawatts of power, equivalent to the energy consumption of about four million homes, the WSJ compared.

This article was AI-translated and verified by a human editor