Amid a series of rousing revelations about the enormous demand for its cloud infrastructure and AI services, Oracle last quarter signed 40 AI deals totaling $1 billion and is building what chairman Larry Ellison called the world’s largest “AI data center.”
Those and other impressive disclosures from CEO Safra Catz and Ellison came during Oracle’s fiscal Q3 earnings call this week. To fully comprehend the significance of those two developments plus Oracle’s overall opportunity and momentum in the wildly competitive cloud infrastructure market, it’s necessary to separate Oracle’s short-term results from its longer-term potential. Here’s what I mean:
Q3 numbers representing the short term: very solid but not spectacular total cloud revenue growth of 25% to $5.1 billion, with cloud infrastructure up 49% and cloud apps up 14%. Those backward-looking numbers for the quarter ended Feb. 29 reflect a strong but not necessarily spectacular cloud quarter for Oracle.
RPO and bookings representing the longer term: But as we shift our gaze from what happened last quarter to what is being booked in the future, it becomes clear that Oracle is fully embracing and even intensifying its role as a hypergrowth disruptor in the hyperscaler category. For instance:
- Catz said Oracle’s RPO (remaining performance obligation) jumped 29% to $80 billion, with $34 billion of that to be recognized as revenue in the next 12 months.
- Within that $80 billion figure that represents contracted business not yet recognized as revenue, Catz said Oracle has signed 40 distinct AI cloud-services deals that total $1 billion, for an average deal size of $25 million.
- In Japan, some of the leading computer manufacturers “are adopting our cloud and will be reselling our cloud as partners,” Ellison said.
- A number of Oracle’s largest cloud customers “want their own Oracle region — they don’t want to share a public cloud,” Ellison said. “They want a cloud region — actually, multiple cloud regions — dedicated to that bank or that technology company or that telephone company.”
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Catz Describes The Coming Demand Surge
On the earnings call, Catz was asked how much of the surging demand that she and Ellison described was already in process, versus business yet to be fulfilled.
“That is all still to come. This is just pretty much our regular-way business — that’s what you’re seeing. We have enormous amounts of demand,” Catz said, echoing her comments from three months ago when she said customer demand for Oracle cloud infrastructure services was growing “astronomically.”
“We have more capacity coming online, but we’ve tried to focus on much larger chunks of data-center capacity and electricity and all of that,” Catz said.
“And that’s all to come. This is really our regular-way business, and our customers are just growing. And a whole bunch of new customers, by the way, have come on and haven’t gotten capacity yet.”
Ellison Describes Data-Center Buildout
Both Ellison and Catz spent a fair amount of time on the call explaining how Oracle’s racing to capture all that demand by building out new data centers as fast as possible. Two factors strongly in Oracle’s favor as it becomes in part a construction company, Ellison said, are that all of its data centers are (1) designed to be exactly the same, except for scale, and (2) are heavily automated, which accelerates the timetable.
“Oracle is building data centers at a record level,” Ellison said, adding that “the unique thing about Oracle’s data centers is that they’re all identical except for scale. So you don’t have custom data centers. They all have all the Oracle services. And they’re all completely automated.”
That’s fully consistent with statements Ellison has made in the past about how Oracle’s approach to cloud infrastructure is radically different from what Microsoft, Amazon, and Google Cloud offer: while those competitors build small numbers of huge data centers, Ellison said, Oracle is going the opposite direction by building large numbers of small data centers. About a year ago, Ellison said Oracle would in the near future have data centers near all of the major cities on Earth.
But in this week’s surprise-filled earnings call, Ellison added a wild new wrinkle to Oracle’s data-center buildout plans, brought about by the GenAI Revolution.
“We’re also building the largest data centers in the world that we know of,” Ellison said, before expanding on that idea and describing that under-construction facility as specifically an “AI data center.”
“We’re building an AI data center in the United States where you could park eight Boeing 747 nose-to-tail in that one data center.” (For those of you who haven’t memorized the dimensions of a 747, they’re 232 feet long — so eight of them nose-to-tail would be 1,856 feet.)
“So we’re building large numbers of data centers, and while some of those data centers are smallish, some of those data centers [will be] the largest AI data centers in the world,” Ellison said.
“We’re bringing on enormous amounts of capacity over the next 24 months because the demand is so high that we need to do all of this just to satisfy our existing set of customers.”
Final Thought
A couple of random-type questions stemming from this Oracle blockbuster:
- Marc Benioff recently said Salesforce is now “a data company.” So does the data-center fixation of Catz and Ellison mean that Oracle is becoming a data-center company? While that’s not a totally serious question, the current dynamics of the market and of Oracle’s disruptive place within it also means the question’s got some relevance.
- In that final comment two paragraphs above from Ellison, he says, “We need to do all of this just to satisfy our existing set of customers.” So, what in the wide world of sports will Oracle need to do to meet the demands of new customers?
Ah, life in the Cloud Wars!
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