Oracle’s $300 billion OpenAI deal puts focus on AI data centers

In short: Oracle is taking on major costs and debt to build large data centers for OpenAI, and it has become a key company investors watch to gauge risk in the AI boom.

What's going on

Oracle, best known for business database software, has shifted more of its attention to AI computing. A central part of that shift is a reported $300 billion agreement with OpenAI, the maker of ChatGPT, to provide the computing power OpenAI needs.

That computing power comes from data centers, which are large buildings filled with servers (computers that run internet services). Oracle is expected to build or lease capacity for multiple very large sites, which would require huge amounts of electricity and many AI chips. Some reporting suggests parts of this buildout may not be finished until 2028.

The business risk is simple. Oracle is spending cash now and taking on debt, while OpenAI still needs to keep raising money and grow revenue to pay for long contracts. Oracle and OpenAI did not respond to requests for comment, according to The Verge.

Oracle’s spending is already visible in its finances. The company reported sharply higher capital expenditures, which is money spent on long-term projects like buildings and equipment, and it has reported negative free cash flow, meaning it spent more cash than it brought in over that period.

What to watch

Investors are watching two things. First, whether Oracle can finish data centers on time, since loan and lease payments arrive on a fixed schedule even if construction slips. Second, whether OpenAI can keep funding its operations and meet its long-term commitments, because Oracle’s plan depends heavily on OpenAI paying for years of computing services.

Source: The Verge AI