On September 10, OpenAI reportedly signed a contract to purchase $300 billion worth of computing power from Oracle in the next five years. The agreement will be implemented from 2027, with the required 4.5GW of electricity capacity equaling the power generation of the two Hoover Dams, enough to supply about 4 million households.

Wall Street News mentioned yesterday that the company’s CEO Safra Catz revealed on the earnings call that the company added $317 billion in remaining performance obligations in the first quarter of the fiscal year, bringing the total value of the indicator to $455 billion, a year-on-year increase of 359%.

For OpenAI, it was an aggressive gambling for its future growth; for Oracle, it meant focusing a large portion of future revenue on a single customer, which puts a serious test on both execution and market prospects.

Oracle’s performance and stock price soar

Oracle’s stock price surged 42% on Wednesday after revealing its latest fiscal quarter (as of August 31).

The company’s CEO Safra Catz told analysts that the company signed contracts with three different clients in the quarter. She emphasized:

We have signed important cloud contracts with giants in the field of artificial intelligence, including OpenAI, xAI, Meta, Nvidia, AMD and many other companies.

The surge in stock prices has increased the wealth of Oracle Chairman Larry Ellison by more than $100 billion, bringing his net worth close to $400 billion, becoming the world’s richest person in line with Musk.

In fact, Oracle first hinted at the deal in a June filing, when it disclosed that the company had reached a cloud service agreement that would bring in more than $30 billion in annual revenue starting in 2027.

A high-risk “big bet”

The contract, which will begin in 2027, is a high-risk gamble for OpenAI and Oracle.

OpenAI, a still-losing startup, disclosed annualized revenue of about $10 billion in June, which is much lower than the $60 billion it pays for the average annual $60 billion it needs to pay for the agreement.

The success of this deal is entirely based on the assumption that ChatGPT can continue its explosive growth and is widely adopted by billions of users around the world, as well as major businesses and governments.

While OpenAI’s growth is unusual, it is also facing growing pressure, including a expensive battle for talent, a tense partnership negotiation with Microsoft, and a for-profit restructuring that is under review by regulators in two states.

For Oracle, the risk is to bet on a single customer’s huge future revenue, and companies may need to borrow to buy the large amount of AI chips needed to support these data centers.

OpenAI’s computing power dilemma

The fundamental reason why OpenAI is seeking this large-scale deal is that it faces a serious shortage of computing power, which is hindering the launch of its products and the development of new AI models.

OpenAI has relied on one of its biggest supporters to exclusively provide computing power for years, but the company reportedly received a waiver to find a new supplier due to disappointment in supply shortages.

To solve the computing power bottleneck, OpenAI tried to launch a new data center project called Star Gate with its supporter SoftBank, but the project started slowly.

Since then, OpenAI said Stargate is the brand of all its data center businesses and regards the deal with Oracle as part of the Stargate project.

This agreement with Oracle marks a key step in OpenAI’s path to ensuring the supply of computing power required for its future AI territory.