Larry Ellison owns 42% of Oracle (NYSE: ORCL), a $465 billion technology giant that is building some of the most powerful data centers for artificial intelligence (AI) development.
Nvidia (NASDAQ: NVDA) supplies Oracle and most other tech companies with data center chips called graphics processing units (GPUs). Nvidia has experienced an eye-popping surge in its revenue over the past year, and GPU demand continues to outstrip supply. However, some investors have begun to question how much longer Oracle and its peers can throw billions of dollars at the chip giant to fuel their AI aspirations.
Worries that the AI train may be starting to lose steam are a key reason Nvidia stock is trading down 14.5% from its all-time high. But the market may have missed comments this month from Ellison at Oracle’s financial analyst meeting that suggest more fantastic news for Nvidia’s investors.
Oracle is nowhere close to meeting its AI infrastructure goals
Oracle’s data centers are unique because they are automated. Each one is operationally identical regardless of its size, and since they don’t require human workers, it allows the company to build them quickly. Plus, Oracle’s RDMA (random direct memory access) GPU networking technology allows data to flow from one point to another more quickly than traditional Ethernet networks.
Since most AI developers pay for computing capacity by the minute, Oracle’s data centers can deliver considerable cost savings compared to competing infrastructure. That’s why demand is soaring from leading AI start-ups like OpenAI, Cohere, and xAI. Oracle had 85 data centers up and running with 77 more under construction as of its fiscal 2025 first quarter (ended Aug. 31), but Ellison thinks it could operate as many as 2,000 in the long term.
Next year, Oracle intends to offer a cluster of 131,072 GPUs, which is a big step up from its largest clusters now, at around 32,000 GPUs. But there’s another difference: The new cluster will use Nvidia’s latest Blackwell chips, which can perform AI inference at 30 times the pace of its flagship H100, which Oracle currently uses. Theoretically, it’s going to allow developers to build the largest AI models in history.
That’s going to benefit Nvidia significantly. It generated $26.3 billion in data center revenue during its fiscal 2025 second quarter (ended July 28) primarily from GPU sales, which was a 154% increase from the year-ago period. That growth rate slowed compared to previous quarters because the numbers have become so large, but Nvidia’s customers are showing no signs of pulling back.
In fact, Oracle spent $6.9 billion on data center infrastructure in fiscal 2024, and it plans to double that figure in fiscal 2025. But it gets better.
Ellison’s latest comments are great news for Nvidia
During the analyst meeting, Ellison told the audience about a dinner he arranged with Tesla CEO (and xAI founder) Elon Musk and Nvidia CEO Jensen Huang at Nobu in Palo Alto. He recalled himself and Musk begging Huang for more GPUs:
Please take our money … take more of it. You’re not taking enough. … We need you to take more of our money. Please.
— Ellison’s and Musk’s comments to Jensen Huang over dinner, according to Ellison.
Oracle Cloud Infrastructure (OCI) generated $2.2 billion in revenue during Q1 (primarily from renting data center capacity to customers), which was a 46% increase from the year-ago period. However, Oracle ended the quarter with a record $99 billion in remaining performance obligations (RPOs), a whopping 53% jump. The company said it signed 42 new deals for GPU capacity worth $3 billion during Q1, which contributed to the backlog.
Oracle can’t serve all of those AI developers — or convert its RPO into revenue — until it brings more data centers online, hence Ellison begging Huang for more GPUs.
Tesla is in a similar position. It’s battling for supremacy in the autonomous self-driving software industry, and it’s trying to bring a cluster of 50,000 GPUs online by the end of this year to further train its AI models. Tesla will spend $10 billion on that infrastructure, but it’s going to need more capacity over time.
Now might be a great time to buy Nvidia stock
Oracle and Tesla aren’t the only companies spending big on data centers. Microsoft spent $55.7 billion on capital expenditures (capex) mostly relating to AI infrastructure during its fiscal 2024 year (ended June 30), and it plans to spend even more in fiscal 2025. Similarly, Amazon‘s capex spending is on track to top $60 billion this calendar year.
Based on Nvidia’s trailing-12-month earnings per share of $2.20, its stock trades at a price-to-earnings (P/E) ratio of 52.7. That’s expensive compared to the 30.9 P/E ratio of the Nasdaq-100 technology index, which hosts many of Nvidia’s big-tech peers.
However, Nvidia’s fiscal 2026 will begin at the end of January 2025, and Wall Street expects the company to deliver $4.02 in earnings per share for the year. That places its stock at a forward P/E ratio of just 28.8. In other words, investors who are willing to hold Nvidia stock for at least the next year and a half could be scooping up a bargain at its current price — assuming Wall Street’s forecast proves accurate.
A slowdown in Nvidia’s business will eventually come because the sheer magnitude of current AI spending will be very difficult to maintain over the long term. Plus, competition is slowly coming online in the GPU space, which could erode some of the company’s market share in the next few years.
However, based on the facts at hand today, Nvidia stock is likely a good buy at the current price. The earmarked AI spending from some of its largest customers suggests a slowdown isn’t on the immediate horizon.
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Oracle Founder Larry Ellison Just Delivered Fantastic News for Nvidia Stock Investors was originally published by The Motley Fool
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