The Biden administration's ongoing dispute with China has raised concerns about the future of American cloud computing companies, with Oracle being particularly vulnerable due to its involvement with TikTok.
A recent proposal aims to close a loophole that allows Chinese enterprises to access AI and supercomputing technologies through cloud computing services without directly importing them. If the new rule is implemented, American cloud providers would require US approval to run AI models for Chinese companies, potentially impacting Oracle the most.
According to a report by The Wall Street Journal, the proposed restriction would not significantly affect major cloud providers like Amazon Web Services, Google, and Microsoft. These companies typically rent services from data centers within their respective service areas, making it difficult for American firms to provide cloud services to Chinese companies. Microsoft has established 21Vianet to cater to non-Chinese enterprises seeking market access in China, while several Chinese cloud providers, including Tencent and Alibaba Cloud, dominate the domestic market.
Oracle is particularly susceptible to the potential consequences of the proposed limitations. In 2020, Oracle won the US cloud business for TikTok and acquired a minority stake in TikTok Global, a company owned by ByteDance. If advanced AI and supercomputing capabilities are denied to TikTok due to the new rule, it may be forced to seek services from a non-US cloud provider. However, analysts suggest that TikTok's contribution to Oracle's cloud-business revenue is relatively small compared to the company's overall performance.
Despite the challenges, Oracle has been actively enhancing its AI cloud capabilities. The company has collaborated with Nvidia to offer cloud AI supercomputing, and its chairman and chief technology officer, Larry Ellison, has stated that Oracle is investing "billions" in powerful hardware from Nvidia, Ampere, and AMD to develop such services.
However, President Joe Biden's administration aims to prevent Beijing from accessing advanced US-made technology, which could impact Oracle's plans. The proposed limitations on selling AI and supercomputing technologies to China could have significant implications for American cloud computing companies.
While major players like Amazon Web Services, Google, and Microsoft are expected to be less affected, Oracle's involvement with TikTok leaves it more vulnerable to potential disruptions. However, it is important to note that TikTok's usage of Oracle's cloud services does not significantly contribute to the company's overall cloud-business revenue.
As the situation develops, it remains to be seen how these proposed restrictions will impact Oracle and other US cloud providers operating in China.