OpenAI Secures 300 Billion Dollar Oracle Deal for AI Infrastructure

OpenAI has recently made significant strides in the artificial intelligence sector, drawing widespread attention with its aggressive expansion. Following the announcement of a billion-dollar partnership with Broadcom for the development of AI chips, the company revealed a five-year, 300 billion dollar agreement with Oracle for the procurement of computing infrastructure. This series of high-stakes collaborations not only represents one of the largest cloud service contracts in tech history but also underscores OpenAI's unprecedented capital investment and strategic ambition.

The collaboration with Oracle is part of OpenAI's previously announced "Stargate" data center construction plan. This deal is one of the largest cloud service contracts ever, with a value far exceeding OpenAI's current revenue. Reports indicate that OpenAI and Oracle will build 4.5 gigawatts of data center computing capacity, equivalent to the power output of two Hoover Dams or the electricity consumption of approximately 4 million American households.

Initial signs of this transaction emerged in June when Oracle mentioned in a regulatory filing that it had secured a cloud service agreement expected to generate over 30 billion dollars in revenue by the 2027 fiscal year. As more data center infrastructure comes online, this revenue is projected to increase annually. A month later, OpenAI publicly confirmed its agreement to purchase 4.5 gigawatts of computing capacity from Oracle, though the specific terms of the contract were not disclosed at the time.

The collaboration between OpenAI and Oracle carries certain risks. OpenAI is currently unprofitable and continues to incur losses. According to its June disclosure, the company's annual revenue is approximately 10 billion dollars, which is less than one-fifth of its annual operating costs of 60 billion dollars. These costs include the construction of data centers and the leasing of computing resources from other data center operators.

Meanwhile, Oracle has staked a significant portion of its future revenue on a single client. To meet the AI chip demands of its planned data centers, the company may need to take on debt. Compared to Microsoft, Amazon, and Meta, Oracle's debt burden is much heavier relative to its cash holdings. Its investments in AI infrastructure have already exceeded its cash flow, with a total debt-to-equity ratio of 427%, compared to Microsoft's 32%.

OpenAI has ventured into several high-risk projects. Reports indicate that the company is also collaborating with Broadcom to develop custom AI chips and aims to create a device that can compete with Apple's iPhone. This company, which has already secured tens of billions of dollars in funding, is consuming resources at a rate unprecedented for any startup. Last year, the CEO indicated to investors that OpenAI is not expected to become profitable until at least 2029, with a potential expenditure of 44 billion dollars to achieve this goal.

Behind these aggressive moves is OpenAI's long-term bet on the growth trajectory of ChatGPT: the belief that it can continue to attract billions of global users and thousands of enterprises, and maintain its lead in the intense competition with rivals like Google and Anthropic. However, as tensions with its primary investor, Microsoft, escalate and the profitability timeline is pushed back, OpenAI's expansion model, supported by massive debt and strategic partnerships, faces increasing sustainability challenges. Balancing strategic investments with financial risks will be a critical factor in shaping the landscape of the AI industry.