Oracle can’t build enough cloud computing for Elon Musk’s xAI

Amid an onslaught of demand from tech giants in a hurry to launch and scale their artificial intelligence units, a global chip crunch continues.

On a call with investors Monday (December 11) to go over quarterly earningsOracle Chairman Larry Ellison reiterated how hot things remain in the race to provide AI models with the massive amounts of computing power needed to train and operate them.

“We have enough Nvidia GPUs for Elon Musk’s company, xAI, to bring the first version, the first available version of their big language model called Grok,” said Ellison, whose company is one of the world’s largest software makers. “They got it going. But boy, did they want a lot more. Boy, they wanted a lot more GPUs than we gave them.”

Nvidia and Oracle have a long-standing partnership which combines the former’s hardware with the latter’s software to advance AI cloud computing development. As Michelle Cheng of Quartz reported, the high-performance, $40,000 Nvidia H100 chip has one of the most sought after pieces of hardware in Silicon Valley. AI models require hundreds to thousands of the chips to work properly; in June, Ellison said Oracle spent “billions”. on them.

Grok pulls source material from Musk’s X, the social media platform formerly known as Twitter, and has a tendency to include jokes and parallel-reality, alternate-fact “hallucinations” in his output. That means some experts question whether it can be taken seriously as an AI, but the need for computers is real.

“There is this gold rush to build the world’s largest large language model,” Ellison told investors. “And we’re doing our best to give our customers what we can this quarter and then dramatically increasing our ability to give them more and more capacity each subsequent quarter.”

Artificial intelligence, real limitations

But one analyst on the call, Deutsche Bank’s Brad Zelnick, questioned whether Oracle will be able to meet the demand he sees. Zelnick pointed out that it took several years for the company to build 66 cloud data centers, making it unclear how Oracle will stay on track to build 100 more. (Zelnick, who has a “buy” rating on Oracle shares, wrote in a research note that artificial intelligence, including the company’s own generative AI products, is not the only thing troubling cloud computing supply. )

Managers have admitted to leaving money on the table, even if they grab it with their hands over their fists. “We had capacity this quarter in the hundreds of millions of dollars more that were just sitting there waiting to be taken,” Oracle CEO Safra Catz said on the call. “Instead of taking small pieces or smaller pieces, we decided to focus on the bigger parts and tried to treat our customers fairly as well and work with them to meet their needs.”

Oracle third-quarter earnings were slightly higher than expected, at $2.5 billion on slightly lower-than-expected $12.9 billion in revenue. The market didn’t like what it saw, and shares fell about 10% in Tuesday trading.