While Oracle’s market cap took a serious beating when fiscal-Q2 results failed to meet analysts’ expectations, chairman Larry Ellison and CEO Safra Catz have made what I believe is a well-grounded and highly credible case that the Oracle Cloud business will deliver outstanding results in 2024.
Now, I’m a big believer in market caps because in many ways they represent the ultimate expression of “the wisdom of the crowd.” But having acknowledged the point that Oracle’s market cap has fallen by about $65 billion in the four months since it reached an all-time high of $347 billion, I want to step away from the market caps and stock prices because that’s not what Cloud Wars is about.
Rather, our mission here is to track how well the Cloud Wars Top 10 companies are aligning everything they do with the wants and needs of enterprise customers. And I believe —enthusiastically and unconditionally — that Larry Ellison and Safra Catz know a whole heckuva lot more about Oracle’s ability to meet the wants and needs of its customers than does the financial-analyst community.
So from Oracle’s Dec. 11 earnings call, I’ve pulled out 10 compelling examples of why Oracle’s long-time leaders — cofounder Ellison’s been with Oracle since its inception 45 years ago and Catz is now in her 25th year near or at the top of the company — are eagerly playing the long game by overlooking short-term opportunism and are instead focusing on creating and delivering long-term business value for customers.
1. ‘We have unlimited demand’ for Oracle Cloud Infrastructure (OCI)
That was one of several unabashedly bullish statements that Ellison and Catz made (that particular one is from Catz) during the Dec. 11 fiscal-Q2 earnings call, during which Oracle reported that cloud revenue for the three months ended Nov. 30 was up 25% to $4.8 billion.
Now, you might be one of those cynics who sees that comment and snarls, “Well of COURSE she would say that — she’s the CEO!” But that’s a lot of nonsense — CEOs of publicly traded companies must exercise great caution in making public statements about the future prospects of their companies because it’s a cardinal sin to mislead investors. So, on the one hand, does Catz want to present Oracle in the most-impressive and also most-accurate light? Of course, she does — that’s her job. And on the other hand, is she also willing to take full responsibility for ensuring that her public comments reflect reality as it unfolds in this, the greatest growth market the world has ever known? The answer’s the same — of course she is.
So in that context, take a look at how both Catz and Ellison described the potential for the Oracle Cloud Infrastructure (OCI) business during that earnings call:
- “We expect OCI to grow astronomically” — Catz
- “We have really just an unlimited amount of demand” — Catz
- “In the next few weeks, we’re going to sign two additional [OCI] contracts right around $1 billion each.” — Ellison
- “The backlog is growing astronomically. I think that’s the word Safra used, and that’s accurate. There’s a reason why OCI grew 50% this quarter.” — Ellison
- “I expect the OCI growth rate to be over 50% for a few years” — Ellison
- “Given the enormity of our pipeline and backlog, I expect CapEx will be somewhere around $8 billion this fiscal year [ending May 31], meaning our second-half CapEx will be considerably higher as we bring online more capacity.”
2. Oracle has become ‘default choice for AI workloads‘
Catz made that claim following some huge deals reflected in OCI’s 50%-plus growth figures, including a landmark deal reportedly valued at $1.5 billion to help Microsoft with AI inferencing for its Bing search engine. She cited four reasons: Oracle’s technologically superior second-gen cloud; its 45 years of running enterprise-scale mission-critical systems; the deployment flexibility it offers customers, going beyond the public cloud to Cloud@Customer, dedicated regions, sovereign clouds, and more; and the company’s unique multi-cloud strategy that led to its breakthrough multi-cloud partnership with Microsoft (for the full story on that remarkable development, please see “The Larry and Satya Show: Oracle and Microsoft Rewire the Business World“).
3. Huge AI demand for OCI, but demand transcends AI
Here’s how Ellison described the wide-ranging interest in his company’s cloud infrastructure: “The demand for cloud infrastructure services and new Oracle Cloud data centers is broad-based, driven not only by generative AI customers but also by nation-states buying sovereign Oracle Cloud data centers; plus large banks, telecommunications companies, and industrial companies buying dedicated Oracle Cloud data centers, and perhaps most interestingly, demand from other hyperscalers and other cloud service providers co-locating and connecting their clouds with Oracle Cloud data centers.”
4. The Microsoft Masterpiece
Last month, after studying some of Ellison’s comments about what Oracle’s been doing with and for Microsoft, I put together an analysis called “Larry Ellison’s Masterpiece: Microsoft Becomes Oracle’s Largest Customer.” While the full story and its ramifications are much broader than this excerpt that I’ll share, here’s the key comment about it from Ellison: “Customers don’t want clouds to be walled gardens. In the next few months, we will turn on 20 new Oracle Cloud data centers co-located with and connected to Microsoft Azure, as a part of our joint multi-cloud initiative. These 20 new multi-cloud data centers will house over 2,000 full racks of Exadata Database Machines, designed to meet pent-up demand for the Oracle Cloud database.”
Did you catch that? Microsoft — a huge player in the cloud-database business — is paying Oracle billions so that Microsoft Azure customers can, among other things, satisfy their “pent-up demand for the Oracle Cloud database”!
5. Looming tsunami of Oracle Database migrations to the cloud: ‘We’re talking tens of billions of dollars‘
Here’s how Catz described a huge but still-forming cloud opportunity as tens of thousands of Oracle databases get moved to the cloud: “Yeah, it is really still to come. We’re talking about tens of billions of dollars when it comes over, so it’s starting to come but we haven’t been in a place to receive it all en masse and customers have to get comfortable with it…. It is the absolute beginning, because remember, the Oracle database is not a toy. It’s a mission-critical system. If it just disappeared at companies, the whole planet would come to a standstill. So this is coming and it’s just the beginning. You see what’s going on with OCI — no one believed us, they said this was impossible. But now we’re getting ready, and then right behind it is going to come the database and that’s going to be something.”
6. Nation-states ordering multiple sovereign data centers
Ellison: “Again, several nation-states have ordered multiple sovereign data centers to be built within their country so that they can move their government, healthcare, and commercial workloads to the Oracle Cloud. These new countries include Japan, Italy, Saudi Arabia, Bangladesh, New Zealand, and others.”
7. A massive buildout of cloud data centers is coming
Ellison: “We’re building our own public regions based on direct customer demand and then we’re building partner regions like the 20 data centers for Microsoft. The combination of the two adds up to 100.”
Catz followed up by pointing out that Oracle’s got big data-center momentum in a related but separate category. “That number doesn’t include the many, many cloud customers that started small and now companies have decided they want their own region, so they added Cloud@Customer. But after that, they decided, ‘No, no, no, now I want a dedicated region of my own — I get it — this is working! I’ve saved millions, tens of millions, sometimes hundreds of millions — now I want my own!’ ”
Catz then described how the long-game philosophy she and Ellison embrace will ultimately benefit customers. “Really, it is absolutely true. We did not bring up as much capacity as we could have used this past quarter because we had to make some audible calls on the field to decide how to allocate, and whether to build something small which was available, which I could have used to recognize revenue right in the quarter, or instead, to go much bigger and to wait until some larger capacity was going to be available to hand over to me and our customers.”
8. In AI market at multiple levels: apps, partner apps, AI training, data
Catz: “Now we have multiple ways to monetize it. Not only as part of our applications but also as part of our infrastructure because one of the unique capabilities we allow is for customers when they use our product to basically use their private data in some of these models for them to learn while also ultimately keeping control of their data and this is applicable in many, many different types of applications.”
9. Going end-to-end in massive healthcare market
Oracle is deploying its full portfolio of advanced cloud technologies and services across the world’s largest industry — healthcare — and Ellison said Oracle can do things in that vast market that other cloud providers cannot.
“Remember, we’re a little bit different than Microsoft — we have a lot more enterprise applications,” Ellison said. “For example, in healthcare, we run clinical trials, we run hospitals, we run ambulatory clinics, we have diagnostic databases for image databases, conventional blood testing databases, all of those…. Right now doctors don’t know if patients have refilled their prescriptions. The doctors aren’t notified and the patients aren’t reminding them, and that’s the high-value end of AI when you’re preventing someone from being rehospitalized, which has a huge cost in terms of human suffering and money.”
10. Alloy program begins to kick in
Catz also offered some of the first in-the-field details about Oracle’s Alloy program, which enables Oracle customers to become cloud companies within their industries with Oracle acting as the technology provider. “We now have seven Alloy Cloud regions planned where Oracle partners become cloud providers offering customized cloud services alongside the Oracle Cloud.”
Final Thought
As Catz noted in item #5 above about the looming tsunami of database migrations to the cloud, Oracle has faced — sometimes justifiably, sometimes not — enormous levels of skepticism about its ability to become a full-scale cloud provider and compete effectively against Microsoft, Google Cloud, and Amazon.
But the customer wins Oracle has been racking up over the past 18 months are blowing away that skepticism while Oracle’s relentless innovation is pushing it into areas such as AI training where it has taken the lead over the other hyperscalers.
So — I realize there’s a vast gulf between simply saying you’re going to do something and actually achieving it. But what Catz and Ellison are saying in the breakdown above makes a lot of sense to me, particularly because in the face of widespread and intense criticism and doubt over the past several, they and Oracle have repeatedly delivered on all of their promises.
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