Oracle's AI Cloud Grows, Revenue Up 25% Amid AI Race

Key Takeaway

• Oracle enhances cloud offerings with generative AI, aiming for productivity boosts and cost reductions, backed by a 25% increase in cloud revenue to $5.1 billion.
• Northern Data shifts focus from bitcoin mining to AI cloud services, investing in Nvidia chips with a 53.2% upside potential as per Berenberg.
• Investment trends favor AI, with Spear Alpha ETF gaining 60% largely due to Nvidia investments, contrasting Ark Innovation ETF's outflows.

Oracle's Generative AI Push

Oracle is enhancing its cloud infrastructure with generative AI capabilities to stay competitive in the rapidly evolving cloud market. The company has integrated generative AI into its applications, complementing the traditional AI functionalities. Rondy Ng, Oracle's executive vice president of applications development, emphasized the synergy between predictive analytics and generative AI, stating, "The two together become very powerful and you need both." In March, Oracle expanded its generative AI features across various applications, aiming to boost productivity and reduce costs. This move follows Oracle's announcement in January about implementing generative AI across its technology stack. Dan Ives of Wedbush Securities highlighted Oracle's potential growth from its AI strategy, citing the company's data and installed base as significant advantages.

Market Dynamics and Oracle's Position

Despite being ranked sixth in cloud infrastructure service market share by Synergy Research Group, Oracle is making strides in the AI domain. The company's late entry into cloud infrastructure has been overshadowed by its recent focus on AI, with CEO Safra Catz reporting significant new cloud infrastructure contracts and a 25% year-over-year increase in cloud revenue to $5.1 billion. Oracle's cloud infrastructure backlog is substantial, with AI expected to drive more meaningful revenue in FY25. Larry Ellison, Oracle's chairman, also highlighted the construction of a data center in Salt Lake City and the company's focus on sovereign AI cloud solutions, indicating a strategic direction towards meeting country-specific data storage requirements.

Northern Data's Strategic Shift

Northern Data, transitioning from bitcoin mining to cloud solutions, has caught the attention of Berenberg, which initiated coverage with a Buy rating and a 53.2% upside potential. The company's pivot includes a significant investment in Nvidia AI chips, aiming to become a major player in AI cloud services by 2024. Northern Data's evolution from a pharmaceutical broker to a leader in crypto mining and now to cloud and data center services demonstrates its adaptability and growth strategy. The company's advancements in liquid-cooling technology, developed through its crypto mining operations, are expected to enhance its competitiveness in the AI market.

AI Investment Trends and Competitive Landscape

The broader investment trend in AI is evident in the performance of Spear Alpha ETF, which has seen a 60% gain in the past year, largely due to its strategic investment in Nvidia. This contrasts with the outflows experienced by Ark Innovation ETF, highlighting the competitive nature of the active ETF market. Northern Data's significant investments in Nvidia AI chips and its certification as an Nvidia "Elite" partner underscore the company's commitment to capitalizing on the AI demand. Analysts Gerhard Orgonas and Jenna Xu from Berenberg are bullish on Northern Data, citing its investments in liquid-cooling technology and expansion plans as key drivers for its competitiveness in the AI and cloud services market.

Street Views

• Dan Ives, Wedbush Securities (Bullish on Oracle):

  "We believe Oracle is seeing a renaissance of growth with its AI strategy. [It is] well positioned to be a major beneficiary of the AI revolution... The data Oracle sits on and installed base gives Ellison & co. a major advantage to monetize the software layer of AI."

Management Quotes

• Rondy Ng, Executive Vice President of Applications Development at Oracle:

  "The classic AI is very good in terms of detecting patterns or predicting numbers ... but you cannot use large language models to predict numbers... So we combined the predictive numbering capability with the explained ability in words. So the two together become very powerful and you need both. In the past many years, the number prediction part is already very mature. As part of the product we continue to evolve that and it’s not going to stop. Generative AI is basically the talk of the town right now." "Generative AI services [are] basically a huge advantage comparing with our competition. The competition needs to work with different companies and cloud providers for that infrastructure and those kinds of services. We actually take everything into an integrated stack, and we consume that."

• Safra Catz, CEO at Oracle:

  "[In March] added several ‘large new cloud infrastructure’ contracts during fiscal third quarter... Interesting to us is management commentary suggesting its Oracle Cloud Infrastructure backlog is significant and AI isn’t yet really driving revenue, which is expected to be more meaningful in FY25."

• Larry Ellison, Chairman and Chief Technology Officer at Oracle:

  "[A Salt Lake City data center that Oracle is building can fit eight Boeing 747 airplanes nose-to-tail.] Laying out future market opportunities... sees more national state government applications being run on platforms like OCI (Oracle Cloud Infrastructure), negotiating sovereign regions with a number of countries."