This Artificial Intelligence (AI) Giant Could Increase Its $10 Billion Business 14-Fold in 5 Years

Core Insights - Global spending on artificial intelligence (AI) is projected to reach $1.5 trillion in 2023, with expectations to grow to $2 trillion by 2026, driven by the demand for generative AI [2] - A specific company has rapidly built a $10 billion business in AI compute, with projections to grow sales to $144 billion within five years, supported by substantial contracts [3] - Oracle has emerged as a competitive alternative for AI compute, securing a $300 billion commitment from OpenAI over five years starting in 2027, despite its cloud infrastructure being smaller than leading competitors [6] Industry Overview - The demand for AI compute is leading to significant investments in data centers and infrastructure, with major contracts from companies like OpenAI and Anthropic valued in the tens of billions annually [5] - Major cloud providers, including Amazon, Microsoft, and Alphabet, are struggling to keep up with the increasing demand for AI services [5] Company Performance - Oracle's backlog of remaining performance obligations surged to $455 billion, up from $137 billion, with $300 billion tied to OpenAI and an additional $18 billion in new contracts [7] - Management anticipates that Oracle's remaining performance obligations could exceed $500 billion by the end of the current quarter [8] - If Oracle successfully grows its cloud business from $10 billion to $144 billion, it could achieve a scale comparable to Alphabet by the end of the decade [9] Financial Considerations - Oracle has incurred significant cash burn of $5.9 billion over the past year and holds $111 billion in debt, necessitating further borrowing to expand its cloud capacity [11] - In comparison, Microsoft, Amazon, and Alphabet are committing substantial capital expenditures to enhance their cloud infrastructure, with Oracle planning to spend $35 billion this year [12][13] - The long-term contract with OpenAI poses risks, as OpenAI's revenue is only $13 billion this year, raising concerns about the profitability of the deal for Oracle [14][15] Market Valuation - Oracle's stock has seen a significant price increase, resulting in a forward PE ratio of 45 for fiscal 2026, which is considerably higher than its larger competitors [16] - While Oracle has potential for substantial growth, the current valuation presents a higher risk compared to other cloud providers, which offer better value with lower risk profiles [16]