Larry Ellison owns 42% of the shares Oracle (NYSE: ORCL)a $465 billion technology giant building some of the most powerful data centers for artificial intelligence (AI) development.
Nvidia (NASDAQ: NVDA) supplies Oracle and most other technology companies with data center chips called graphics processing units (GPUs). Nvidia has experienced an eye-popping increase in sales over the past year, and demand for GPUs continues to outpace supply. However, some investors are starting to wonder how much longer Oracle and its peers can throw billions of dollars at the chip giant to fuel their AI aspirations.
Concerns that the AI train is starting to lose steam are a big reason why Nvidia shares are down 14.5% from their all-time high. But the market may have missed comments from Ellison at Oracle’s financial analyst meeting this month that suggest even more fantastic news for Nvidia’s investors.
Oracle’s data centers are unique because they are automated. They are all operationally identical regardless of size, and because no human workers are required, the company can build them quickly. Additionally, Oracle’s RDMA (random direct memory access) GPU networking technology allows data to flow from one point to another faster than traditional Ethernet networks.
Because most AI developers pay for computing power by the minute, Oracle’s data centers can deliver significant cost savings compared to competing infrastructure. Therefore, demand from leading AI startups such as OpenAI, Cohere and xAI is increasing. Oracle had 85 data centers operational and 77 more under construction as of the first quarter of fiscal 2025 (ending August 31), but Ellison believes it could operate as many as 2,000 in the long term.
Next year, Oracle plans to offer a cluster of 131,072 GPUs, which is a big step up from the largest clusters now, which have about 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 speed of its flagship H100, which Oracle currently uses. Theoretically, it will allow developers to build the largest AI models in history.
That will benefit Nvidia significantly. It generated $26.3 billion in data center revenue during the second quarter of fiscal 2025 (ended July 28), primarily from GPU sales, which was up 154% from the same period a year ago. That growth rate slowed compared to previous quarters because the numbers have gotten so big, but Nvidia’s customers show no signs of backing down.
In fact, Oracle spent $6.9 billion on data center infrastructure in fiscal year 2024, and plans to double that figure in fiscal year 2025. But it will get better.
During the analyst meeting, Ellison told the audience about a dinner he had arranged to meet Tesla CEO (and xAI founder) Elon Musk and Nvidia CEO Jensen Huang at Nobu in Palo Alto. He remembered himself and Musk begging Huang for more GPUs:
Please take our money… take more of it. You’re not taking enough. …We want you to take more of our money. Please.
Oracle Cloud Infrastructure (OCI) generated $2.2 billion in revenue in the first quarter (primarily from renting data center capacity to customers), up 46% from the same period a year ago. However, Oracle ended the quarter with a record $99 billion in remaining performance obligations (RPOs), a massive 53% increase. The company said it signed 42 new deals for GPU capacity worth $3 billion in the first quarter, contributing to the backlog.
Oracle can’t serve all these AI developers — or convert its RPO into revenue — until it brings more data centers online, which is why Ellison Huang is begging for more GPUs.
Tesla is in a similar position. It is fighting for supremacy in the autonomous, self-driving software industry and is looking 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 will need more capacity over time.
Image source: Nvidia.
Oracle and Tesla aren’t the only companies spending heavily on data centers. Microsoft spent $55.7 billion on capital expenditures (capex), mainly related to AI infrastructure, in fiscal year 2024 (ending June 30), and plans to spend even more in fiscal year 2025. AmazonThe company’s capex spend is on track to exceed $60 billion this calendar year.
Based on Nvidia’s trailing-twelve-month earnings per share of $2.20, the stock trades at a price-to-earnings (P/E) ratio of 52.7. That’s expensive compared to the company’s price-earnings ratio of 30.9 Nasdaq-100 technology index, which houses many of Nvidia’s big tech peers.
However, Nvidia’s 2026 fiscal year begins in late January 2025 and Wall Street expects the company to post earnings per share of $4.02 this year. That puts the stock at a forward price-to-earnings ratio of just 28.8. In other words, investors willing to hold Nvidia stock for at least the next year and a half could be getting a bargain at today’s price — assuming Wall Street’s forecast proves accurate.
There will eventually be a slowdown in Nvidia’s business, as the sheer volume of current AI spending will be very difficult to sustain in the long term. Additionally, competition in GPUs is slowly emerging, which could erode some of the company’s market share in the coming years.
However, based on current facts, Nvidia stock is likely a good buy at its current price. The earmarked AI spend from some of the largest customers suggests no slowdown is in the offing.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Microsoft, Nvidia, Oracle and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Oracle founder Larry Ellison just delivered some fantastic news for Nvidia Stock Investors, originally published by The Motley Fool
