Better Offline - Monologue: Is Oracle Screwed?

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Starting point is 00:00:15 Learn how podcasting can help your business. Call 844-844-I-Hart. Orzo Media. Greetings and salutations, Traveler. I'm your host, Ed Zittron, and this is your better offline monologue for the week. Blood is running through the stock market as everybody realizes at once shit I've been saying since 2024. The generative AI costs too much, loses everybody money and doesn't have the growth

Starting point is 00:00:47 potential to make any of this shit worth it. Yet this has been a week for the more sophisticated haters, with Oracle stock plummeting on the news that it had to raise another $45 to $55 billion to fund data centers for open AI, which timed poorly with a story running that Invidia was no longer doing its $100 billion investment in Open AI. something you will know was the case because it was on this podcast months ago and has been multiple times since. To catch you up, last September, Oracle announced a $300 billion five-year-long deal to provide compute to open AI, powered by 4.5 gigawatts of compute capacity that at the time and at this time did not and does not exist. As far as I can tell, only 200 megawatts

Starting point is 00:01:32 of Stargate Abilene, a project that's been a work in progress since 2024, appears to be complete, And to my knowledge as well, there's only like 200 megawatts of power out there. They need a lot more than that. That's meant to be a 1.2 gigawatt center. Not great. Now, several other data center projects are allegedly in the works too. Stargate Shackleford, Texas and Wisconsin, Stargate New Mexico, and theoretically at least, Stargate Michigan, through Blue Owl,

Starting point is 00:01:58 who invested in basically every Stargate project and pulled out of Michigan due to financing conditions souring. Oracle had previously raised $56 billion in bonds and debt, with $38 billion of that, specifically earmarked for Shackleford and Wisconsin. That debt is payable over four years, with two one-year extensions, and payments are interest only until construction is complete. One little problem, I'm afraid. According to Jerome Darling at T.D. Cohen, it's upwards of $42 million a megawatt to build a data center.

Starting point is 00:02:29 Completing these data centers is going to cost at least $189 billion for the four and a half gigawatts, and Oracle was and is short by quite some measure. So it sold $25 billion more in bonds and plans to sell another $20 billion of stock in an at-the-money share sale, literally printing new shares and dumping them onto the market in intervals set by the bankers behind the deal. Mathematicians in the audience have likely run the numbers at this point and worked out that this is only $101 billion, which is less than $189 billion. It may seem obvious, but I don't know. the fucking markets don't appear to be able to count. Now, the other problem Oracle has is that the only way it can pay these loans off is if OpenAI is able to pay them,

Starting point is 00:03:12 and I need to be clear how difficult that will be. That $300 billion five-year-long compute deal guarantees that at least one year will be over $80 billion in payments. For some context, the entire revenue of Microsoft's Azure Cloud in 2025 was $75 billion. How does OpenAI pay that? especially when Oracle hasn't built the capacity, but they don't have the money. They only allegedly made $13 billion last year and lost $9 billion on top of that. How the hell do they pay this? I don't know, but everyone seems to think they will, or at least they did. Now, Invidia, of course, went out to say that they would absolutely be investing a lot of money in Open AI's supposed

Starting point is 00:03:50 upcoming round, this $100 billion one, different to this $100 billion deal they were talking about. Open AI is currently raising $100 billion, allegedly. But InVidia is only putting $20 billion in. And Jensen went on CNBC with Jim Kramer and had the most bizarre conversation. I'll link to it in the episode notes. He was just saying, oh, yes, Open AI is wonderful. Cutting over Jim Kramer. As Jim Kramer just said, they're going,

Starting point is 00:04:17 Well, you know, we love your deal. It's the best deal ever sounding like Sylvester the cat. And Jensen is just cutting over him saying, well, Open AI's amazing. No drama. No drama at all. And let me tell you something. The reason he's saying no drama is because OpenAI also leaked a thing saying that Sam Altman and OpenAI were unhappy with Nvidia chips. It's all so good. This is the kind of stuff that happens when things are going well. And, well, Oracle saw this and Oracle saw this back and forth and they thought, we need to help. We need to help the markets. So they put out a tweet, and I'm just going to read it to you. The Nvidia OpenAI deal has zero impact. on our financial relationship with OpenAI. We remain highly confident in OpenAI's ability to raise funds and meet its commitments.

Starting point is 00:05:04 Sadly, Oracle's the Nvidia-O-Pen-A-I deal has zero impact on our financial relationship t-shirt appears to have people asking them a lot of questions already answered by the show. Jokes aside, that's the kind of thing that Alex Wilhelm tech reporter said it's bank run language. You don't want it. That will always have the opposite effect, saying, I said this on an interview recently. It's like walking into a room saying, I didn't fucking kill it. anyone. People are probably going to ask why you need to bring that up at this time. The other part of that statement that got me, it was we're highly confident in Open AI's ability to raise funds.

Starting point is 00:05:40 They're not paying this out of cash flow. So Oracle is just depending their entire existence on Open AI's ability to raise some venture capitalists. It's all very good. It's all very, very good. And it all times very, very poorly with a TD Cohen analyst letter that suggested Oracle, would have to fire upwards of 25,000 people and potentially sell its valuable CERNA healthcare IT infrastructure just to make it through. And again, they paid $28 billion for CERNA and T.D. Cohen said that would be $8 to $10 billion worth of cash flow. Again, nowhere near $189 billion. Look, look, I need people to realize that Oracle cannot afford this buildout. It's committed to building 10 gigawatts of capacity for OpenAI, meaning that on top of the $189 billion it needs already,

Starting point is 00:06:26 Oracle needs another $231 billion just to build those data centers. And on its last earnings, Oracle had a cash flow of negative $13 billion. It's not looking very positive. And yes, Oracle also just bought TikTok, a business that also, but it loses billions and billions of dollars. And yes, Larry Ellison's wealth is almost entirely tied up in Oracle's stock, which is currently hurtling towards hell with a velocity reserve for Thatcher and Reagan. I know you're going to listen to this, and I hear from a lot of you, no matter how many times I say this. Everyone's like, oh, the TikTok deal is not about, it's not about making money, it's about political influence.

Starting point is 00:07:08 Wow, you're the first fucking person to tell me that. No one has ever told me that other than the first 150 fucking people. Not an original thought. And also, not a particularly effective one. The algorithm on TikTok is already shitting its pants because Oracle can't stop messing with it, because they want to do the propaganda thing. And guess how TikTok makes money, ads? And how does TikTok show ads? Well, they keep you on the app with the algorithm. How do you think this is going to work? I know it all feels a little ridiculous, but there really is a future in which Oracle collapses. Larry Ellison's stock is entirely tied up in Oracle. And I just did a story called The Haters Goat to Oracle in my premium newsletter that goes through this.

Starting point is 00:07:48 But this is a company, a company, I'm just keeping it, a company in decline. And they are really looking quite shaky, and even if they weren't in decline, the amount of money they're trying to spend here is genuinely impossible for them to afford. They are going to have to stress the debt markets, the levels they've never seen, and even then, they cannot afford the payments unless Open AI can pay them more than anyone has ever paid for Cloud, ever. I don't know. I'm excited. I don't hold stock. And until we know more, I really only have one question. Is that good? Another podcast from some SNL late-night comedy guy, not quite. Unhumor me with Robert Smygel and Friends. Me and hilarious guests from Bob Odenkirk to David Letterman help make you funnier.

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Better Offline - Monologue: Is Oracle Screwed?

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