As Oracle Inks Partnerships With OpenAI, Google Cloud, CTO Ellison Says ‘We Should Be Interconnected To Everybody’

‘That’s what we’re attempting to do within our multi-cloud strategy. I think that’s what customers want. So I’m optimistic that’s the way the world will settle out. We’ll get rid of these fees for moving data from cloud to cloud,’ says Oracle Chairman and CTO Larry Ellison on the company’s earnings call.

Just prior to Oracle’s earnings call Tuesday, the company revealed that Microsoft-backed AI leader OpenAI will run deep learning and AI workflows on Oracle Cloud Infrastructure and that it has signed a multi-cloud partnership with Google Cloud.

The data center Oracle is building for OpenAI has Nvidia chips and will help with AI training with not just languages but images, said Larry Ellison, co-founder, chairman and CTO of the Austin, Texas-based company, which reported earnings for the fourth quarter of its 2024 fiscal year, ended May 31.

The Google partnership makes Cross-Cloud Interconnect now available in 11 Oracle regions, with an Oracle Database@Google Cloud offering coming in September.

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When asked on the call about a partnership similar to the Microsoft and Google ones with rival Amazon Web Services—often a target of Ellison’s on Oracle earnings calls—he said he is open to it in the name of minimizing network costs and network latency for users.

“We think we should be interconnected to everybody,” he said. “That’s what we’re attempting to do within our multi-cloud strategy. I think that’s what customers want. So I’m optimistic that’s the way the world will settle out. We’ll get rid of these fees for moving data from cloud to cloud. And all the clouds will be interconnected, and customers can pick their favorite service from their favorite cloud and mix and match.”

Surge In AI Contracts

Oracle signed more than 30 AI contracts for more than $12 billion during the quarter. It also is working on some of the largest data centers in the world, including ones up to 1 gigawatt.

Oracle spent $6.9 billion in capital expenditures, up 39 percent year over year. “We are working as quickly as we can to get cloud capacity built out, given the enormity of our backlog and pipeline,” said CEO Safra Catz on the call. “At this moment, we have 76 customer-facing cloud regions live, with 47 public cloud regions around the world and another 19 being built.”

Catz also said she didn’t view constrained capacity as a problem. “Our pipeline to take more deals is all about us just getting the capacity up and live and moving forward,” she said. “These customers have done a lot of the analysis and the engineering in advance and have tested us or competed us against our competitors and have chosen us already understanding how we work. And they’re just waiting for us to give them more capacity.”

Oracle has 11 Oracle Database@Azure sites live with “more locations with Microsoft coming online soon,” Catz said. “We also have 13 dedicated regions live and 15 more planned. … We already have two Alloy cloud regions live with 11 more planned.”

As to the opportunity around AI, Ellison said that it is a long-term one.

“This AI race is going to go on for a long time,” Ellison said. “It’s not a matter of … simply getting ahead in AI. But you also have to keep your model current. And that’s going to take larger and larger data centers.”

Oracle Fourth-Quarter Earnings

Catz said that during the quarter the vendor saw the largest sales contract in its history—without naming the buyer—and record-level sales for Oracle Cloud Infrastructure, Autonomous Database, its Fusion suite and NetSuite.

“We are trading one-time, non-recurring license revenue in return for much bigger strategic customer commitments for multiyear cloud revenue, from which we expect to further accelerate our revenue growth rate,” Catz said on the call. “It bolsters my confidence that our overall revenue earnings and cash flow performance, as well as our growth rates, will only get stronger and accelerate.”

Ellison said on the call that the company he co-founded in 1977 should continue to win in the market in part because of its ability to build data centers small enough for ships or submarines—including a full Oracle cloud in six standard half racks—as well as some of the largest data centers in the world.

Oracle is building a 70-megawatt data center that can house eight Boeing 747 airplanes nose to tail plus a 200-megawatt data center. Oracle “sold about half of that data center for a period of time” during the quarter, Ellison said.

Oracle is planning even larger data centers, including ones up to 1 gigawatt, “a pretty good- size city or one enormous AI cloud training data center,” he said. “No one else can span this range. … Currently, we are leading the pack in being able to deliver that quality and that scale of data center.”

The large data centers will help with large language model (LLM) training and updating. He also pointed to Oracle’s latecomer status to the cloud provider market as helpful to the cloud tailwinds the vendor sees now. Oracle’s cloud was designed for tens of thousands of data centers and regions, not just hundreds.

“We have the advantage of seeing what all the other guys did, and we took a different road,” he said. “It took us a bit longer, but we think we’re better off in terms of security. We’re better off in terms of scalability. … It allows us to get to every corner of the globe and provide a level of privacy for your data that other cloud providers cannot provide.”

Catz added that “some of our competitors may offer some level of sovereignty or some level of disconnected, but they don’t actually have all the services.”

“For us, and the reason we’ve been so successful, is whether it’s disconnected or sovereign or whatever it is, the customer always gets everything, all services, not just some services, and they get to deploy it any way they want,” she said. “And they get the security or the regulatory requirements.”

Fourth Quarter In Depth

For the quarter, Oracle’s total remaining performance obligations increased 44 percent year over year to $98 billion, according to the vendor. RPO grew $18 billion from the prior quarter, Catz said.

Excluding Cerner, RPO grew 60 percent. About 39 percent of that RPO should become revenue over the next 12 months, Catz said. “This reflects the growing trend of customers wanting larger contracts, as they see firsthand how Oracle Cloud services are benefiting their businesses,” she said.

The vendor reported $14.3 billion in total revenue for the quarter, up 4 percent year over year ignoring foreign exchange. Excluding Cerner, that growth was 5 percent.

Cloud services and license support revenue hit $10.2 billion during the quarter, up 10 percent year over year ignoring foreign exchange.

Cloud license and on-premises license revenue fell to $1.8 billion for the quarter, down 14 percent ignoring foreign exchange, “reflecting customer preference for cloud services,” Catz said.

Cloud revenue during the quarter—which includes IaaS plus SaaS—was $5.3 billion for the quarter, up 20 percent year over year.

Excluding Cerner, total cloud revenue was $4.7 billion, up 23 percent year over year.

IaaS alone brought in $2 billion, up 42 percent year over year. SaaS revenue was $3.3 billion, up 10 percent year over year.

App subscription revenue, including product support, was $4.6 billion, up 6 percent year over year, Catz said on the call. Strategic back-office staff apps reached annualized revenue of $7.7 billion, up 16 percent.

Oracle’s Fusion Cloud enterprise ERP offering brought in $800 million during the quarter, up 14 percent year over year. NetSuite Cloud brought in the same amount, up 10 percent year over year. Infrastructure subscription revenue and license support was $5.6 billion, up 13 percent year over year.

Infrastructure cloud services revenue grew 42 percent year over year. OCI Gen 2 infrastructure cloud services grew 44 percent year over year with annualized revenue of $7.4 billion, excluding legacy hosting.

OCI consumption revenue was up 53 percent year over year. Catz said that “were it not for continuing supply constraints, consumption growth would have been even higher.”

Database subscriptions, including database license support, was up 6 percent. Cloud database services grew 26 percent and hit annualized revenue of $2 billion. “We expect these cloud database services will be that third leg of revenue growth alongside OCI and strategic staff [offerings],” Catz said.

The vendor’s operating income under GAAP was $4.7 billion. Net income was $3.1 billion. Oracle ended the quarter with $10.7 billion in cash and marketable securities.

During the quarter, Oracle exited the advertising business, Catz revealed, saying it “had declined to about $300 million in revenue in fiscal year ’24,” she said.

Oracle’s stock traded at about $135 a share after market close, up about 9 percent.

Fiscal Year 2024 In Depth

Oracle saw $53 billion in total revenue for the 2024 fiscal year, up 6 percent year over year.

Cloud services and license support revenue for the year hit $39.4 billion, up 11 percent year over year ignoring foreign exchange.

App subscription revenue grew 9 percent, Catz said. Infrastructure subscription revenue grew 13 percent. Total cloud services excluding Cerner hit $17.2 billion, up 26 percent. SaaS revenue excluding Cerner was $10.4 billion, up 13 percent year over year.

IaaS and cloud infrastructure revenue hit $6.8 billion, up 50 percent. Consumption revenue grew 66 percent year over year, Catz said.

Cloud license and on-premises license revenue fell to $5.1 billion for the year, down 12 percent year over year.

Operating cash flow for the fiscal year was $18.7 billion, up 9 percent year over year accounting for foreign exchange. GAAP operating income was $15.4 billion. GAAP net income was $10.5 billion.

Fiscal Year 2025 Guidance

For the first quarter of the 2025 fiscal year, Catz predicted total revenue growing 6 percent to 8 percent ignoring foreign exchange. Total cloud revenue is predicted to grow between 21 percent and 23 percent excluding foreign exchange, she said.

Cloud demand will push Oracle sales and RPO into double-digit revenue growth in fiscal year 2025, Catz said. Fiscal year 2025 cloud infrastructure services revenue should “grow faster than the 50 percent we reported this year.”

“I also expect that each successive quarter should grow faster than the previous quarter as OCI capacity increases to meet demand,” Catz said. “We believe our … current momentum will continue as our pipeline is growing even faster than booking, and our win rates are going higher as well.”

Catz said first fiscal quarter revenue from the Oracle and Microsoft Azure partnership could be as much as 10 times that of the past quarter and the second fiscal quarter could be 30 times as much. “It is extremely incremental to our current run rate,” she said.