Oracle has reportedly cancelled a huge $7 billion deal with Chinese tech giant Tencent after the US government said it could not access advanced AI chips from the company.
It’s another sign of rising tensions between Washington and Beijing over semiconductor technology, AI infrastructure and national security.
The FT reported Oracle dropped the five-year deal after US officials approached it and expressed concerns about the arrangement. Under the deal Tencent would have been able to use Oracle data centres across Southeast Asia to access 100,000 high end AI chips.
The deal was said to be worth about $7 billion and Tencent’s largest overseas chip-leasing arrangement. But the reported cancellation has raised questions over how Chinese technology companies will get the computing power they need to compete in the rapidly growing global AI market.
What was the $7 billion Oracle-Tencent deal
The deal which was reportedly struck earlier this year was meant to allow Tencent access to more advanced AI processors (which Washington restricts from going to China and Beijing controls) because it’s hard to get directly in China (Washington also restricts purchases of chips made by Chinese companies).
Under the agreement Tencent would lease computing capacity across multiple Oracle data centres in Southeast Asia for five years. It was reported that about 100,000 advanced AI chips were part of the deal and around 30% of the estimated value will be paid upfront.
That was especially important for Tencent since the company is still expanding its AI capabilities and building large language models.
Powerful processors are needed to train and run advanced AI systems so overseas computing arrangements were an important option for Chinese technology companies that have been restricted from importing semiconductors.
Why did the US government raise concerns
The intervention is part of Washington’s growing efforts to keep China from getting access to advanced American computing technology.
The U.S. has put several export controls in place to limit China’s ability to get high performance semiconductor chips that could be used for AI development and military applications as well.
Although the Oracle-Tencent deal had data centres outside China, access to restricted processors was concerning to US officials.
The latest move also shows that restrictions on advanced technology aren’t just about direct chip sales. Overseas cloud computing services and access to data-centre infrastructure are increasingly part of the broader technology competition between the two countries as well.
China also wants Tencent to support domestic chips
Interestingly, pressure on the agreement came from China as well.
Senior officials from Guangdong, where Tencent is based, visited the company and encouraged it to back China’s domestic semiconductor industry according to Financial Times.
Beijing has been pressuring local technology companies to cut reliance on foreign processors and strengthen domestic chip manufacturing capability.
Chinese companies are being nudged to look at locally developed alternatives as the country tries to build up a stronger semiconductor ecosystem.
What happens next
If true, the cancellation could hurt Tencent’s AI expansion as demand for advanced computing infrastructure grows (and will only grow more so).
It also shows how uncertain international technology partnerships between American cloud providers and Chinese companies are becoming.
Reuters said it could not independently verify the Financial Times report. Oracle, Tencent and the White House had not yet responded to requests for comment.
This is how geopolitics is now affecting billion dollar technology deals the US tightens its approach to advanced AI tech and China ramps up domestic semiconductor ambitions. Access to computing power is a big battleground in the global AI race.
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