How Oracle is finding its place in the era of AI

Oracle is starting to gain attention from AI stock watchers, something its chief executive Safra Catz finds amusing for an ‘overnight success 45 years in the making’.

Technology analysts and investors are trying to work out if old-tech software firm Oracle can become new tech. Picture: Getty Images

Stockmarket followers are being warned to watch out for “AI washing” as generative artificial intelligence looms as a breakthrough technology change and increasing numbers of companies try to cash in on tenuous links to computers that think for themselves.

At the 600-people strong Oracle CloudWorld conference in Singapore, technology analysts and investors were trying to work out where Oracle - one of the original billionaire-making software firms - fits into the mix and asking, can this old-tech company become new-tech?

“Really over the last year, only a very small subset of companies have effectively moved from AI washing their businesses to concretely articulating how AI is changing their business and operating models,” says Daniel Newman, who runs tech advisory firm Futurum Group.

Remarkable fortunes have been made by those that have.

Take for example Nvidia, the $US2.2 trillion giant that was an unknown minnow outside of gaming up until a few years ago. Its graphics processing units provided gamers the fastest animations. Now those same GPUs are critical for AI and are the work horses for AI processing.

In the past five years Nvidia stock has risen 1881 per cent. A nice investment for those who bought in early. It is now the third biggest company in the world behind Microsoft and Apple.

The $US3 trillion giant Microsoft has stayed at the technology front line with its shares rising 218 per cent in five years, partly coming on the back of its 49 per cent ownership of OpenAI, as well as being a cloud provider and maker of the constantly changing software needed to run AI.

Oracle is tiny - by these relative measures - with a market capitalisation of $US329bn. Its stock has risen 116 per cent in the five-year period and Newman believes it is profiting from AI and should break out what it means to the business.

“Investors want to understand the incremental value that AI is bringing to their revenue stream, their margins and then ultimately to their profit,” says Newman, who based in Austin, Texas, where Oracle is headquartered.

Newman cites Microsoft and Salesforce as companies that are starting to break out their revenue figures or explain where AI is fitting into the sales mix.

But it doesn’t sound likely that Oracle will.

Oracle chief executive Safra Catz told the CloudWorld audience that the firm’s view is that AI will “be integrated into everything” and believes people will soon “take it for granted” in the same way that global positioning systems (GPS) are now just a standard part of the mix.

Oracle chief executive Safra Catz at the Oracle CloudWorld conference in Singapore.

Instead of competing with the likes of Google and Microsoft to build a AI engine, Oracle claims to offer the fastest cloud service – critical for the speeds AI engines require as well as software that uses AI as part of its operating model.

The firm is the fourth biggest cloud technology provider and offers a sizable software as a service (SaaS) business including being the second biggest enterprise resource planning (ERP) provider, the third biggest in the customer relationship management (CRM) market, and also offers financial planning analysis.

Oracle is starting to gain attention from AI stock watchers and Catz finds it amusing, saying it’s something that comes up in conversation with founder and chief information officer Larry Ellison.

“We laugh because sometimes we say we’re an overnight success 45 years in the making,” Catz told the audience. “It’s one of those things where we put down little markers over the decades in technical decisions that have altogether risen to this moment.”

Long-term planning does seem to be paying off.

Oracle is “a very interesting company” because about three quarters of its revenue is predictable and based on its long-term licensing strategy. It has hundreds of thousands of customers, and Newman believes, that “in the era of AI” should be considered as “compelling”.

“Some of the most important customer data on the planet sits inside of Oracle,” says Newman. “And they’ve made some really interesting partnerships.”

Oracle was the first company Nvidia tied up with to offer its services in the cloud, with most AI compute consumed in the cloud via the cloud hyperscalers on a Nvidia hardware. In addition, Nvidia uses Oracle for its SaaS offerings.

The double benefit for Oracle is that it can offer the Nvidia solution to their substantial and sticky customer base. Sticky because it costs so much to move from on-premise to the cloud, to change enterprise revenue platforms and if you want to use Oracle cloud but don’t have Oracle it costs more.

“There’s so many Oracle customers, and they’re naturally migrating all those Oracle customers using Oracle database to their own cloud,’ says Newman. “That’s a really natural growth vehicle for them. It’s almost impossible to move off of Oracle, it’s very expensive.”

Oracle has grown its infrastructure business to over $US10bn and is continuing to scale its overall cloud business.

The firm has also partnered with Microsoft to try create a viable cloud alternative to Amazon, which dominates the cloud sector. Oracle and Microsoft have partnered up to share data centres to create bigger regional zones to try take on the market leader, though the two combined are still smaller than the Jeff Bezos-run rival.

Is Oracle a company that could see Nvidia or even Microsoft gains over the next decade is the question.

Nvidia stock has surged, creating a $US2.2 trillion giant. The question is whether Oracle is a company that could see Nvidia or even Microsoft gains over the next decade. Picture: Getty Images

Tech analyst Phil Hassey from Sydney-based CapioIT, who was attending CloudWorld, believes the company is transforming.

“Like any company they’ve got their innovation side and then they’ve got their legacy business, which is a bit slow, but they’ve been much more aggressive in the last couple of years,”says Hassey. “They have actually turned around and tried to catch up their laggard status from a cloud and their GenAI point of view. It’s a company transforming to a fully-cloud world.”

Hassey says it’s worth considering which companies from that old school of tech, such as Dell and IBM, are still thriving rather than just surviving.

“Microsoft is the only one that has made that shift to become new tech and Oracle will be able to transform large parts of the business but will still have that core base,” Hassey adds.

Microsoft was transformed when Satya Nadella took the helm in 2014. Its size has increased more than nine-fold on the back of moves into social media through the acquisition of LinkedIn, gaming through Minecraft, and cloud through Azure and of course OpenAI.

Oracle Japan and Asia Pacific senior vice president for technology and strategy Chris Chelliah says his is a company already transformed.

His firm has been doing autonomous databases since 2017, back when it “wasn’t trendy, or sexy”.

“We said back then, ‘why would you manage a database with human data base administrators who are error prone and sometimes have to take leave and get sick or don’t know when you need to scale up or scale down? Why would you do that? Why would you not let machine learning do that for you?’. So, machine learning and AI is pervasive in everything we do.”

As for the question of whether Oracle should be worth as much as its much larger rival Microsoft?

“We are underpinning a lot of AI and that’s the growth momentum. AI is fuelled by two things, being data and infrastructure, and we are the only one that does both.”

The author travelled to Singapore as a guest of Oracle