OpenAI’s Cloud Spending Drives Oracle’s Market Surge Amid Tech Industry Gains

Oracle’s Stock Rally Highlights OpenAI’s Expanding Cloud Commitments

Oracle’s recent historic stock surge underscores the growing impact of OpenAI’s cloud computing investments on the technology sector. The artificial intelligence startup, known for its rapid growth since launching ChatGPT in late 2022, has become a pivotal client for several major tech companies, with Oracle emerging as the latest beneficiary.

In its latest earnings report, Oracle revealed that OpenAI was a significant driver behind its strong performance, having signed a multibillion-dollar contract to support OpenAI’s cloud infrastructure expansion. This deal is part of a broader trend where OpenAI’s outsized spending is reshaping the fortunes of leading tech firms.

OpenAI’s Cloud Spending Fuels Tech Giants’ Growth

OpenAI’s influence is evident across multiple industry leaders. Microsoft, the AI startup’s closest partner, has invested over $13 billion and served as its primary cloud provider for six years. Nvidia’s GPUs power OpenAI’s large language models, contributing to Nvidia’s rise as the world’s most valuable chipmaker. Similarly, Broadcom’s shares surged nearly 10% following news of a $10 billion custom processor deal reportedly linked to OpenAI.

Together, Oracle, Broadcom, Microsoft, and Nvidia have seen their market capitalizations increase by more than $4.5 trillion since OpenAI’s public debut, significantly bolstering major indexes like the Nasdaq and S&P 500.

Oracle’s Expanding Backlog and Investor Concerns

Oracle’s quarterly earnings revealed four multibillion-dollar contracts, including one with OpenAI, which has committed to developing 4.5 gigawatts of U.S. data center capacity with the company. A June SEC filing had already indicated a $30 billion cloud contract with an unnamed customer, later confirmed to be OpenAI, which plans to invest $300 billion in cloud computing over roughly five years starting in 2027.

This surge in contracted revenue, or performance obligations, propelled Oracle’s backlog to $455 billion, a 359% increase year-over-year. However, some analysts caution that the heavy reliance on OpenAI—potentially accounting for over 90% of this backlog—raises risks. Gil Luria, an analyst at D.A. Davidson, noted that Oracle’s concentration with a single customer diminishes enthusiasm, despite the stock’s impressive gains.

OpenAI’s Financial Strategy and Future Outlook

OpenAI continues to operate as a cash-burning startup under a nonprofit parent, with a valuation around $500 billion supported by a limited pool of investors betting on its success amid fierce competition from Meta, Google, Anthropic, and Chinese AI firms.

OpenAI is also investing in other cloud providers such as CoreWeave and Google, and is involved in Stargate, a U.S. AI infrastructure initiative jointly led by OpenAI, Oracle, and SoftBank. The company expects its annual recurring revenue to grow from $10 billion as of June to $125 billion by 2029, reflecting an aggressive growth trajectory despite ongoing losses.

To secure $40 billion from its latest financing round, OpenAI is transitioning its commercial entity to a public benefit corporation while maintaining nonprofit oversight and retaining an equity stake exceeding $100 billion.

Market Skepticism on Oracle’s AI Ambitions

Despite the surge in Oracle’s market value—approaching $930 billion at its peak—some industry experts remain skeptical about Oracle’s position in the AI landscape. Byron Deeter of Bessemer Venture Partners described Oracle as a “B-level hyperscaler” that trails leaders like Amazon, Microsoft, and Google in cloud infrastructure and lacks significant AI software or chip capabilities.

Deeter expressed doubts that Oracle could leverage its new OpenAI contract to become a dominant AI player, suggesting that recent investor enthusiasm may be premature.

Oracle did not respond to requests for comment, and OpenAI declined to comment on the specifics of their agreements.