Oracle's Larry Ellison Just Delivered Fantastic News for Nvidia Investors

Key Points

• Oracle and Nvidia both have benefited from the AI boom so far.

• Ellison offered key insight regarding the next significant AI growth driver.

• 10 stocks we like better than Nvidia ›

Nvidia (NASDAQ: NVDA), the world's leading artificial intelligence (AI) chip designer, has spoken extensively about the AI opportunity ahead. During its latest earnings report, the company even stated that AI infrastructure spending may reach as much as $4 billion by the end of the decade. Nvidia would greatly benefit from this since a key tool in AI is the graphics processing unit (GPU), or the chip that powers essential tasks. And Nvidia's GPUs are the most powerful ones out there.

All of this is great, but it's also key to listen to what others in the market are saying, particularly Nvidia's customers. Nvidia doesn't release their names, but filings and commentary from various tech players tell us quite a bit. And Oracle (NYSE: ORCL) just so happens to be a significant customer. In fact, last year, Oracle Co-founder and Chief Technology Officer Larry Ellison said he "begged" Nvidia CEO Jensen Huang for more GPUs.

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Now, in Oracle's latest earnings call, Ellison had something else to say that represents fantastic news for Nvidia shareholders...

Image source: Getty Images.

Nvidia's GPUs for training and inferencing

First, though, a brief summary of the Nvidia story so far and a quick look at how Oracle fits into the picture. Nvidia, as mentioned, is the AI chip giant. Its GPUs are widely used for the training and inference of large language models (LLMs), and Nvidia also sells a variety of complementary products and services. So, customers can rely on Nvidia for all their AI needs.

This has supercharged Nvidia's sales over the past few years, with revenue climbing in the double or triple digits to record levels quarter after quarter. The company is also highly profitable in sales, as evidenced by its gross margin levels. They've remained above 70%, with the exception of one quarter, when Nvidia took a charge for chips it was no longer authorized to sell to China.

The chip giant aims to stay ahead through its constant focus on innovation, and so far, this seems to be the right plan. Nvidia has seen soaring demand for its past two releases: the Blackwell architecture and chip late last year and, very recently, the release of the update, the Blackwell Ultra. Customers have demonstrated that they want to get in on the very latest Nvidia has to offer.

As for Oracle, you may know the company for its database management system, but in recent years, the company has expanded to include cloud infrastructure in its offerings -- and this has proven to be a genius move. Oracle invests in Nvidia hardware to serve its cloud customers, and this cloud business has powered revenue higher quarter after quarter.

Ellison's words about the AI market

Now, let's consider what Ellison had to say in the recent earnings call and why it's such outstanding news for Nvidia shareholders. "People are running out of inferencing capacity," Ellison said. "There's a huge amount of demand for inferencing." He even said that earlier this year, a company called to ask for any capacity anywhere in the world to use for inferencing.

Inferencing involves powering the "thinking" process that an LLM goes through to come up with answers to complex queries. It's seen as the next big stage of growth in the AI market because it's the actual application of a trained AI model to real-world needs.

Blackwell beats Hopper

Where does Nvidia come in? The company specifically designed its latest Blackwell platform for inferencing, and the updates to follow will also build on this expertise. For example, Nvidia said its Blackwell architecture is 40 times higher in speed and throughput than the previous Hopper system, resulting in lower costs for the customer and better response quality.

Oracle's observation of this need for inferencing – and in some cases, companies not easily finding enough to meet their needs -- suggests demand will remain strong for Nvidia's latest GPUs and the ones to come. As mentioned, inferencing is needed as AI is put to use. It's not a start-and-finish job but an ongoing process as AI is applied to real-world uses and problems.

This is fantastic news for Nvidia shareholders, as it means the company is well positioned to continue delivering major growth over the long term -- and that could help the stock explode higher.

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Adria Cimino has positions in Oracle. The Motley Fool has positions in and recommends Nvidia and Oracle. The Motley Fool has a disclosure policy.