This $50 Billion AI Bet Is Either Oracle's Masterstroke or Its Biggest Mistake
Key Points
Oracle’s revenue has been soaring during the AI boom.
The company, a database management specialist, has greatly expanded and become a significant cloud player.
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Key players in the world of artificial intelligence (AI) infrastructure have reached an important point in their growth story. To meet the immense demand in the AI market, they must invest. Amazon, Alphabet, Microsoft, and Meta Platforms together pledged nearly $700 billion this year in capital expenditures to support their AI infrastructure buildouts. This puts the industry on track to meet an Nvidia prediction. Last year, the chip giant said AI spending on infrastructure may reach $4 trillion by the end of the decade.
Oracle (NYSE: ORCL) is the latest to speak about its AI efforts, and the software and cloud giant isn't shy about its ambitions. The company already is generating spectacular growth thanks to AI demand -- and aims to keep this AI growth going. To do so, the company announced a $50 billion AI bet that could either be the company's masterstroke -- or its biggest mistake. Let's find out more.
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Oracle's role in AI
You might know Oracle best for its database management dominance, but in recent years, the company has built out its cloud presence and has become a significant player here. This has led to AI growth, as customers seek capacity.
The recent quarter is an excellent example of the momentum we've seen over the past few years. Oracle reported remaining performance obligations surged more than 300% to $553 billion -- these are contracts for which Oracle hasn't yet completed the services or booked revenue. And the company's multi-cloud database revenue soared more than 500%, while AI infrastructure revenue advanced more than 200%. Demand surpassed supply in both of these categories.
Against this backdrop, Oracle plans to raise $50 billion to support the growth of its AI infrastructure -- so that it may serve the needs of AI customers. Is this a masterstroke or could this be Oracle's biggest mistake? Investors have worried about the idea of companies overspending on AI, and the risk that demand could falter. So far, though, the message from all major AI players has been the same: Demand continues to soar.
Raising $30 billion
Meanwhile, Oracle raised $30 billion through investment-grade bonds and mandatory convertible preferred stock within days of its announcement. And during its earnings call, the company emphasized its focus on maintaining its investment-grade rating and respecting its financing envelope.
All of this means we shouldn't worry about the impact of Oracle's financing plans, as they have been put in place in a careful manner. On top of this, the $50 billion bet allows Oracle to continue playing a major role in what could be a once-in-a-generation opportunity. So, Oracle's move looks more like a masterstroke than a mistake.
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Adria Cimino has positions in Amazon and Oracle. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Oracle. The Motley Fool has a disclosure policy.
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