While a news report last week speculating about Oracle landing a $10-billion cloud deal with Elon Musk’s xAI triggered great shock and wonder within the media, it turns out that Oracle chairman Larry Ellison offered a big, fat, and very public hint about this whole possibility two months ago.
Among the widespread media coverage last week, Investors Business Daily’s headline proclaimed, “Oracle Stock Jumps On Report of $10B Cloud Deal With Musk’s AI Startup.” The accompanying article said in part, “Elon Musk’s artificial intelligence startup xAI is in talks with Oracle on a multiyear, $10 billion cloud-computing deal…. Musk’s xAI startup would become one of Oracle’s largest customers, according to the report.”
Okay, fair enough — AI is the hottest business topic in the world today, and the cloud is the engine that’s powering the AI Revolution, and Oracle’s unique approach to cloud data centers has made the company a highly disruptive and fast-growing player in the Cloud Wars.
Plus, don’t forget that Ellison and Musk have previously done a great deal of business together: among other collaborations, Ellison was on the board of Tesla from 2018 to 2022 and had made a significant investment in Musk’s disruptive car company. In public comments, Ellison has occasionally mentioned Musk’s SpaceX and Starlink broadband satellite internet technology, most recently on Oracle’s fiscal-Q3 earnings call in March when Ellison described how Oracle’s AI technology, in combination with geospatial mapping technologies from Musk’s SpaceX, is helping farmers around the world boost the volumes of food they can grow.
But what was even more noteworthy on that same March 11 Oracle earnings call were Ellison’s comments about Oracle’s ongoing construction of what Ellison called “the largest data centers in the world that we know of.”
That’s interesting enough in its own right, but then Ellison gave everyone a look into Oracle’s future by calling these massive new facilities by a brand-new name: “AI data centers.” And as a long-time student of Larry Ellison’s strategy and approach, I can say with great confidence that it was no coincidence that he debuted this “AI data center” neologism in a very public setting and as Oracle’s cloud-infrastructure business is booming.
Here’s how Ellison — a truly masterful storyteller — spun the tale on the earnings call, emphasizing that while Oracle has enjoyed great success by building large numbers of small data centers, the vicissitudes of the AI Revolution have convinced him that Oracle needs to simultaneously go big as well because of the unique data demands of the AI boom.
“Every time we build a data center, it’s like the data center we built before except for one thing: scale. We can go very small. We can get a full cloud data center with all the services and 10 racks,” Ellison said.
“But this is what I want to point out. We’re also building the largest data centers in the world that we know of. We’re building an AI data center in the United States where you could park eight Boeing 747s nose-to-tail in that one data center. So, we are building large numbers of data centers, and some of those data centers are smallish, but some of those data centers are the largest AI data centers in the world. So, we’re bringing on enormous amounts of capacity over the next 24 months because the demand is so high, we need to do that to just satisfy our existing set of customers” (emphasis added).
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When Ellison said, “the demand is so high,” just how high was he talking about? Well, here’s one example that he cited about the unprecedented data-center buildout Oracle is undertaking for Microsoft.
“To give you an idea, in terms of data centers, we’re building 20 data centers for Microsoft and Azure. And they just ordered three more data centers this quarter, so they’re adding to that already.”
What I find fascinating there is that in these crazy times, Microsoft — a company that knows a thing or two about data centers — is seeing its business change so dramatically that it first contracted for 20 data centers from Oracle to enable Microsoft customers to buy and use Oracle database technology, and just several months later bumped that total up to 23.
And beyond that highly specialized multi-cloud data-center engagement, Oracle is also anticipating that the extraordinary growth it has seen in cloud-infrastructure deals for AI training and inferencing will require the company to go beyond its initial cloud-infrastructure strategy of hundreds of small cloud data centers across the globe by also creating massive data-center facilities purpose-built for the AI Revolution — ergo, “AI data centers.”
“The scale of some of these data centers is breathtaking,” Ellison said on the March 11 call. “Again, the one we’re building in Salt Lake City, again, you can park eight 747s nose-to-tail! We can give you a video of this thing under construction, but it’s hard to describe — I mean, it’s breathtaking.
“So there’s a tremendous amount of demand.”
Final Thought
Given all that, it does not stretch the bounds of the imagination to consider that as Elon Musk scales up xAI to keep pace with the astonishing demand for AI technologies and capabilities and services, he would want to do some data-center business with an acknowledged data-center innovator.
Oracle checks that box.
And it probably wouldn’t be a bad thing if he had not only some history but also possibly even some current business dealings with the cloud-industry executive into whose hands Musk is entrusting some of xAI’s future.
Again, Oracle and Ellison check that box.
And, from Musk’s perspective, it certainly wouldn’t hurt if that cloud-industry executive has a long track record of seeing around corners and over the horizon, and is currently leveraging that innovative mindset to help accelerate the transformation of what data centers have been into what they need to be.
Once again, Ellison and his “AI data centers” check all the boxes.
Proving once again that while life in the Cloud Wars is many things, it is never dull–and the customers are always the biggest winners!
