Monologue: Is Oracle Screwed?

Episode Transcript
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Speaker 1 (00:03):
Media. Greetings and salutations, traveler. I'm your host ed Xetron
and this is your better offline monologue for the week. Also,
blood is running through the stock market as everybody realizes
that once shit I've been saying since twenty twenty four,

(00:23):
the generative AI costs too much, loses everybody money, and
doesn't have the growth 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 forty five to
fifty five billion dollars to fund data centers for open Ai,
which timed poorly with a story running that in video

(00:45):
was no longer doing its one hundred billion dollar 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 one. Last September,
Oracle announced the three hundred billion dollar, five year long
deal to provide compute to open Ai, powered by four
point five gigawatts of compute capacity that at the time

(01:06):
and at this time did not and does not exist
as far as I can tell, only two hundred megawats
of Stargate Abilene, a project that's been a work in
progress since twenty twenty four, appears to be complete, and
to my knowledge as well, there's only like two hundred
megawats of power out there. They need a lot more
than that. That's meant to be a one point two
gigawat center. Not great now. Several other data center projects

(01:29):
are allegedly in the works too, Stargate Shackleford, Texas and Wisconsin,
Stargate New Mexico, and theoretically at least Stargate Michigan through
Blue Owl, who invested in basically every Stargate project and
pulled out of Michigan due to financing conditions. Souring Oracle
had previously raised fifty six billion dollars in bonds and debt,
with thirty eight billion of that specifically yearmarked for Shackleford

(01:52):
and Wisconsin. That debt is payable over four years, with
two one year extensions and payments for interest only until
construc duction is complete. One little problem, I'm afraid. According
to Jerome Darling at TD Cohen, it's upwards of forty
two million dollars in megawatt to build a data center.
Completing these data centers is going to cost at least
one hundred and eighty nine billion dollars for the four

(02:13):
and a half gigawats an Oracle was and is short
by quite some measure, so it sold twenty five billion
dollars more in bonds and plans to sell another twenty
billion dollars 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

(02:34):
point and worked out that this is only one hundred
and one billion dollars, which is less than one hundred
and eighty nine billion dollars. 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 open Ai is able to pay them, and I
need to be clear how difficult that will be. That

(02:55):
three hundred billion dollar, five year long compute deal guarantees
that at least one year will be over eighty billion
dollars in payments. For some context, the entire revenue of
MICROSOFTS as your cloud in twenty twenty five was seventy
five billion dollars. How does open ai pay that, especially
when Oracles' build capacity but they don't have the money.
They only allegedly made thirteen billion dollars last year and

(03:18):
lost nine billion dollars 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.
In video, of course, went out to say that they
would absolutely be investing a lot of money in open
AI's supposed upcoming round, this one hundred billion dollar one.
Different to this one hundred billion dollar deal they were
talking about. Open ai is currently raising one hundred billion

(03:39):
dollars allegedly, but in video is only putting twenty billion
dollars 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's Jim Kramer
just said they going, well, you know, we love your deal.
Is to base to bash this deal ever, sounding like

(04:01):
Sylvester the Cat, and Jensen is just cutting over him
saying what open a ey is amazing. No drama, no
drama at all. And let me tell you something. The
reason he's saying no drama is because open ai also
leaked a thing saying that that Sam Altman and open
Ai were unhappy with in video chips, it's all so good.
This is this is the kind of stuff that happens

(04:22):
when things are going well and well. Oracles saw this,
and Oracles 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 in video open Ai
deal has zero impact on our financial relationship with open Ai.
We remain highly confident in open aiy's ability to raise
funds and meet its commitments. Sadly, Oracles, the in video

(04:46):
open Ai deal has zero impact on our financial relationship.
T shirt appears to have people asking them a lot
of questions already answered by the shirt jokes aside, that's
the kind of thing that Alex Wilhelm tech reporter said.
It's bank run language. You don't that will always have
the opposite effect saying, well, it's I said this on
an interview recently. It's like walking into the room and
saying I didn't fucking kill anyone. People are gonna people

(05:10):
are probably gonna ask why you need to bring that
up at this time. The other part of that statement
that got me was we're highly confident in open AI's
ability to raise funds. 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

(05:32):
all times very very poorly, with a TD Cohen analyst
letter that suggested Oracle would have to fire upwards of
twenty five thousand people and potentially sell its valuable set
SNA healthcare IT infrastructure just to make it through. And
again they paid twenty eight billion dollars with Serna, and
TD Cohen said that would be eight to ten billion
dollars worth of cash flow, again nowhere near one hundred

(05:53):
and eighty nine billion dollars. Look, look, I need people
to realize that Oracle cannot afford this out. It's committed
to building ten gigawats of capacity for open Ai, meaning
that on top of the one hundred and eighty nine
billion dollars it needs already. Oracle needs another two hundred
and thirty one billion dollars just to build those data centers.
And on its last earnings, Oracle had a cash flow

(06:15):
of negative thirteen billion dollars. It's 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 stock,
which is currently hurtling towards hell with a velocity reserve
for Thatcher and Reagan, I know you're gonna listen to this,

(06:39):
and I hear from a lot of you. No matter
how many times I say this, everyone's like, oh, the
two deals are not about it's not about making money.
It's about political influence. Wow, you're the first fucking person
to tell me that. No one has ever told me
that other than the first one hundred and fifty fucking people.
Not an original thought and also not a particularly effective one.
The algorithm on ticketok is already shitting its pants because

(07:02):
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 gonna 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

(07:24):
in Oracle, and I just did a story called the
Hater's God to Oracle in my premium newsletter that goes
through this. But this is a company in 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

(07:44):
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. Ah nah, I'm excited.
I own to hold stock, and until we know more,
I really only have one question. Is that good? H

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Ed Zitron

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