In the realm of artificial intelligence, a behemoth is emerging. Oracle, led by Larry Ellison, is constructing a network of data centers that will revolutionize AI development. These automated centers, powered by Nvidia’s graphics processing units (GPUs), are capable of delivering unprecedented computing capacity at a lower cost. The demand is skyrocketing, with leading AI startups like OpenAI, Cohere, and xAI clamoring for access.
Ellison envisions a future where Oracle operates up to 2,000 data centers, a staggering increase from the 85 currently in operation. Next year, the company plans to launch a cluster of 131,072 GPUs, a significant leap from its current largest clusters of 32,000 GPUs. This new cluster will utilize Nvidia’s cutting-edge Blackwell chips, which can perform AI inference at an astonishing 30 times the pace of its flagship H100.
The implications for Nvidia are profound. Oracle spent $6.9 billion on data center infrastructure in fiscal 2024 and plans to double that figure in fiscal 2025. During a dinner meeting with Tesla CEO Elon Musk and Nvidia CEO Jensen Huang, Ellison reportedly begged Huang to take more of their money, citing the desperate need for more GPUs.
Oracle Cloud Infrastructure generated $2.2 billion in revenue during Q1, a 46% increase from the previous year. The company ended the quarter with a record $99 billion in remaining performance obligations, a 53% jump. With 42 new deals for GPU capacity worth $3 billion signed during Q1, Oracle is poised to continue its rapid growth.
Tesla, too, is investing heavily in AI infrastructure, with plans to spend $10 billion on a cluster of 50,000 GPUs by the end of the year. Microsoft and Amazon are also committing billions to AI infrastructure, ensuring a continued surge in demand for Nvidia’s GPUs.
Despite trading down 14.5% from its all-time high, Nvidia’s stock remains a compelling buy. With a forward P/E ratio of 28.8, investors who hold onto the stock for the next year and a half may be getting a bargain. While a slowdown in AI spending is inevitable, the current pace of investment suggests that Nvidia’s growth will continue unabated in the near term.
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