Oracle Reshapes the Cloud Market: Cut Competitive Risk and Capture the Upside

In a recent interview, Oracle co‑founder Larry Ellison talked about a dinner he had at Nobu Palo Alto with Elon Musk and Jensen Huang.

He recounted how, together with Elon Musk, he pleaded with Nvidia’s Jensen Huang to "take our investment and supply us with GPUs."

Oracle is a U.S. multinational computer technology company founded in 1977 by Larry Ellison, Bob Miner, and Ed Oates. It primarily provides database management systems (DBMS), cloud engineering systems, and enterprise software products.

As the world’s largest database software provider, Oracle’s products are used by countless corporations and government agencies around the globe. By market capitalization, it is one of the largest software companies after Apple, Microsoft, and Alphabet (Google’s parent company), and Larry Ellison is regarded as one of the wealthiest individuals in the world.

Yet among the general public, Oracle may be less familiar than Microsoft or Google. That’s because Oracle has focused mainly on enterprise software and solutions, with relatively few consumer‑facing products.

So why would someone like him ask Nvidia’s Jensen Huang to take his money? The answer lies in Oracle’s cloud business.

Larry Ellison’s decision to go all‑in on the cloud business was largely driven by the AI market and by Elon Musk’s persuasion.

As that dinner with Elon Musk suggests, Ellison has a close relationship with Musk.

Larry Ellison has been an outspoken supporter of Elon Musk for years. At Oracle OpenWorld in 2015, he pushed back against skeptical journalists, stressing that "Elon is smart, and he lands rockets on drone ships in the middle of the ocean." Oracle has also formed a partnership with SpaceX, building a cooperative relationship. Even from this alone, it’s clear that Ellison and Musk share a fairly close bond.

2015 was when the AI market was still rumbling beneath the surface. Google’s acquisition of DeepMind in 2014 and the founding of OpenAI in 2015 back this up. Around this time, Elon Musk was deeply concerned that Alphabet’s Larry Page would monopolize the AI market, and many believe he likely shared those concerns with his close friend Ellison as well.

If you think of Elon Musk’s “AI hype” as what pushed Oracle to launch its own AI-related business, Oracle’s timing in entering the cloud market starts to make sense. Oracle was relatively late to the cloud game.

Amazon Web Services (AWS) introduced commercial cloud computing services in 2006, Google launched Google Cloud Platform (GCP) in 2008, and Microsoft rolled out Azure in 2010. By contrast, Oracle only entered the market in 2015 with the launch of Oracle Cloud. That was at least 5 to 10 years later than its competitors.

Jumping into a market already carved up by big-name incumbents without any strategy at all? Oracle’s decision was only possible because it sensed a structural shift in the market.

The cloud business that started this way has since become the main driver of Oracle’s growth.

According to Oracle’s 10-Q filing released on August 31, 2023, the cloud segment accounted for 37% of total revenue in the first three months of fiscal 2024, and the company expects that share to rise to 42% next year. Cloud and license businesses together make up 84% of total revenue, which shows that licenses still underpin the topline, but future growth is meant to come from cloud.

Because the AI market is set to grow.

Oracle is one of the companies most aggressively integrating AI technologies into its own products and services. By embedding AI into its offerings, it has automated security and management for its database services and now provides cloud services capable of high-performance computing and data analytics.

As a result, Oracle’s recent performance is often described as “driven by the integration of AI into its products.” But its intention to generate future growth through cloud is fundamentally a bet on the expansion of the AI market.

As AI technology advances, the importance of cloud infrastructure is coming to the fore. To absorb surging demand, Ellison has been championing a “multi-cloud era” and is actively partnering with competitors such as AWS, Microsoft Azure, and Google Cloud.

When Larry Ellison talks about “multi-cloud,” he literally means using multiple cloud services in parallel.

Training AI models requires massive resources, and enterprise customers are demanding environments that are faster, safer, and more convenient. In response, a company might run certain services on AWS, handle data analytics on Google Cloud, and operate its ERP system on Oracle Cloud. From the customer’s perspective, this setup maximizes efficiency.

At the recent Oracle CloudWorld, Larry Ellison said, “The time has come for cloud infrastructure providers to open up and integrate their systems,” and invited Matt Garman, senior vice president at AWS. Matt Garman responded, “AWS customers are strongly demanding that we work with Oracle,” and “They’re hoping to solve latency issues through Oracle.”

Oracle and Google also had conflicts in the past over intellectual property disputes related to the use of Java, but they have recently built a cooperative relationship. This is because collaboration among cloud service providers has become crucial to supplying the massive resources needed for AI training.

Cloud companies look determined to band together and scoop up every last crumb of opportunity. At least while the AI market is expanding, there seems little need to worry about competitive risks for cloud service providers.

Alongside the upbeat outlook for the AI market, cloud service providers are also entering a new phase of growth. How companies like Oracle respond to these market shifts will clearly be something to watch. If you feel the competition and risks among AI companies themselves are too intense, it may be worth turning your attention to the cloud service providers instead.