US tech giant Oracle (NYSE: ORCL) was one of the first companies to lease a powerful underground data center in Israel to supply its customers - banks, health funds, and defense forces, with AI processing services, data management and information storage. Even before Microsoft, Amazon and Google built data centers in Israel, Oracle decided in 2019 to bet on the local market and lease four floors of an underground data center in Jerusalem's Har Hotzvim. The 14,000 square meter facility consumed 8 megawatts of electricity per hour.
In recent months, Oracle began examining the feasibility of building a much larger 30 megawatt data center for processing AI and the operations of complex computers requiring high-performance computing (HPC) infrastructures. The cost of building the data center is more than $250 million and one of the locations being considered for the facility is Israel.
At the same time, Oracle is also considering other locations including Greece, Saudi Arabia and the UAE. "Globes" has learned that Oracle, managed by Israeli CEO Safra Catz and CTO Larry Ellison, who is close to Prime Minister Benjamin Netanyahu, has chosen to build the large data center in the UAE. The final decision on the matter has not yet been taken but the likely preference of the UAE indicates the apprehension of the international tech giants to commit to the construction of large projects in Israel during the war. Some companies are waiting for the war to end while others have already moved away to other regions.
Oracle's management is considered especially pro-Israel and its leaders have spoken many times in the past about expansion of their operations in Israel. In 2021 Catz, who was born in Israel and grew up in the US, told "Globes" that unlike Google or Amazon, an employee who is not satisfied with the company's cooperation with Israel has no place in the company.
She also stressed the importance of building an Israeli data center that would serve the local market and solve dependence on foreign companies that serve Israel remotely. Ellison, who hosted Netanyahu at his Hawaii mansion while he was chairman of the opposition in 2022 and is even believed to have once offered Netanyahu a place on Oracle's board of directors.
The tech giants lease in Israel
The global appetite for consuming AI services has resulted in the tech giants building large computers at a growing pace. These are huge buildings where hundreds of server cabinets are placed, connected together to form powerful supercomputers. Even before the AI revolution, giant companies such as Amazon, Google and Nvidia rented tens of thousands of square meters of data centers space in the Sharon region, Modi'in-Shoham and the Beit Shemesh area, in order to closely serve banks, insurance companies, health funds and government ministries as part of the expansion of their cloud operations in Israel.
Meanwhile, despite the war, demand for cloud computing in Israel is growing, and estimates are that a dozen data center are currently under construction in Israel with tens of megawatts capacity each, by companies such as Anan, Scheinfeld Engineering, Med-1, EdgeConnex and Kardan, to satisfy the growing demand and increased computing and processing power.
At the same time, the increase in AI use since the launch of ChatGPT at the end of 2022 has raised among the cloud companies that provide technology and infrastructure for the field - including Oracle, Google, Microsoft, Amazon and Nvidia - a need for particularly data centers over areas of up to 15 acres, with power consumption of 200 megawatts. Therefore, even building a data center that consumes 30 megawatts needs the option of expanding to 64 megawatts and perhaps even 100 megawatts in the future.
A data center executive, who prefers to stay anonymous, said, "In Israel, it was not difficult to find areas and electrical infrastructure for small data centers of eight or twelve megawatts in the cloud sector, but AI processing facilities are in a completely different league. There are not enough areas in Israel near electrical infrastructure that can provide what is required today for a 100 megawatt center, for example, which requires 12.5 to 15 acres. To this must be added the cloud giants' new requirements of building the data center at least 50 kilometers from the northern and Gaza borders, which limits them to expensive land in the center of the country at prices ranging from NIS 6 to 8 million per 1,000 square meters. Also, electricity prices are 25% higher in Israel than in the UAE and 100% higher than in Saudi Arabia. All of these make AI infrastructure projects less viable in Israel."
Another senior executive said, "In the age of AI the need to locate a data center close to the market is less critical and therefore it can be built almost anywhere that allows low operating and ownership costs, which is to say operating and service costs, electricity and taxes. In addition, cooling AI servers is carried out with chilled water, so there is no significance to the fact that the data center is located in a hot country like the UAE or Saudi Arabia."
To all this must be added the fact that during the war, the big cloud companies have halted their new commitments to Israel. Those who were in talks to construct new buildings - froze them. Those who are required to expand their operations in Israel - such as Amazon or Microsoft - have done so on the basis of their existing infrastructure. Many of them have planned large projects here with the expectation that Israel would become a central junction of fiber optic cables between Asia and the Middle East and Europe. But the deployment of two main fiber optic cables that were supposed to pass through Israel - Centurion and Google's Blue Raman - have been frozen due to the war in Israel and the Houthi threat in the Red Sea. According to estimates, the arrival of the ship that was supposed to connect the Blue cable from Greece to Israel has been postponed for at least a year.
Investing government money
The UAE tends to offer not only cheap and abundant land and electricity at low tariffs, but also invests billions of dollars of government money to attract the tech giants. The huge G42 fund, which raised about a $1 billion from UAE's Mubadallah wealth fund and the US Silverlake fund, recently raised another $1.5 billion from Microsoft, for joint construction of two large data centers for AI in the country. G42 itself is busy procuring thousands of graphics processors for the country to build an AI computing infrastructure, and has signed a deal with Nvidia's competitor, Cerebras, to buy processors worth over $1 billion.
Since 2017, supported by UAE Minister of AI Affairs, Omar Al Olama, TII has been operating in the country and is behind the successful Falcon language model. With a government investment of hundreds of millions of dollars, it challenges Meta and Mistral in operating AI models. The company has brought to Abu Dhabi hundreds of AI experts from Europe and the US. In Israel, however, there are no incentives for building data centers or computing in the field of AI. The government's AI program currently has funding of only about $130 million dollars until 2027.
Since Oracle leased land for its data center in Jerusalem from Binat in 2019, it has not expanded its operations in Israel, despite its plans to lease land at Med-1's underground data center in Tirat Hacarmel, which ultimately were not implemented. In March, Ellison set out the company's data centers construction plans and said that Oracle intends to spend $10 billion on construction of computing facilities in 2025, including, "large AI centers in a total area in which eight Boeing 747 aircraft could be parked. We are creating enormous amounts of data capacity in the next two years."
Oracle declined to comment on this report.
Published by Globes, Israel business news - en.globes.co.il - on October 10, 2024.
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