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The Biden administration wants to close a loophole that gives Chinese companies access to restricted technology.
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Chinese companies obtain the technology using advanced American cloud services.
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Most US cloud companies won’t be affected too much, with the possible exception of Oracle, which runs TikTok.
American cloud computing companies are set to be the latest target of contention between the Biden administration and China. And, if a new administration proposal passes, Oracle could be hit the hardest.
The administration wants to close a loophole that prevents American companies from exporting artificial intelligence and other advanced supercomputing technologies to Chinese companies, reports the Wall Street Journal. This loophole concerns cloud computing companies. Chinese companies do not need to import AI technologies to use them. They only have to pay for the cloud computing services offered by the biggest cloud providers.
The new rule would require the United States to allow American cloud companies to provide such services to Chinese companies to run AI models.
For the most part, this rule won’t have a material impact on the biggest cloud computing providers like Amazon Web Services, Google or Microsoft, Bernstein analyst Mark Moerdler points out in a research note on the situation. Most of the time, cloud customers rent from data centers located in the country or region where they serve customers. And American companies are quite crowded out to offer such services to Chinese companies.
Microsoft, for example, has a separate business entity called 21Vianet to offer services in China. This network is not only physically separated from the rest of its massive Azure cloud infrastructure, but is especially attractive to non-Chinese companies looking to access the Chinese market. Chinese companies have many local cloud providers to use for their cloud computing needs, such as Tencent and Alibaba Cloud.
The one cloud provider that might be caught in the most uncomfortable crosshairs is Oracle. Oracle is the cloud provider for TikTok’s US operations, and when it won TikTok’s US cloud business in 2020, it announced it had also taken a minority stake in TikTok Global. The majority owner of TikTok is Chinese parent company ByteDance.
Moerdler thinks the worst-case scenario is that TikTok could be forced to use the cloud from a non-US cloud provider, if it needed advanced AI and supercomputer technology, and the government refuses.
Even if this unlikely circumstance did occur, it might be a shrug of the shoulders for Oracle at this point in its transformation into a cloud competitor.
Oracle doesn’t disclose how much of its cloud business revenue is generated by TikTok, but Moerdler isn’t worried it’s material. Oracle just hit an all-time high of nearly $50 billion in revenue for its 2023 fiscal year, it announced in June. Much of that, Oracle’s financial data reveals, comes from the cloud software Oracle sells to its giant roster of customers, not from a company like TikTok using Oracle’s cloud to run its own software.
Still, Oracle uses its TikTok deal much like it uses its Zoom deal — as a big name proving its cloud can handle even massive numbers of users streaming video, the toughest type of data.
Oracle is investing heavily in strengthening its cloud for AI customers. It has partnered with AI chipmaker Nvidia to offer an AI supercomputing service in the cloud. It spends “billions” on advanced chips from Nvidia and other partners like Ampere and AMD to build such services, its president and chief technical officer Larry Ellison said. This is exactly the kind of cutting-edge technology made in the United States that President Joe Biden wants to keep away from Beijing.
Oracle and Moerdler did not immediately respond to requests for comment.
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