Monologue: How OpenAI Kills Oracle

to be very clear about something. For open Ai to be able to pay the deals it is signed with all of these different companies Amazon, Microsoft, Core, with seah Brus and Oracle, it will have to be ten to fifteen times its current revenue and have raised at least another one hundred and fifty billion dollars. If it fails, Oracle will run out of money and not be able

to pay its debts and probably shut down. And I know that sounds insane because Oracle is so large and it has been around for so long, but let me explain. Oracle is building around seven point one gigawatts of data center capacity for open AI with the majority of it looking like it will be finished somewhere towards the end of twenty twenty eight at absolute best, if not the end of twenty twenty nine or twenty thirty if it

ever gets built. Star Gay Abilene, the only one of them anywhere near completion, started in the middle of twenty twenty four. Sits two years into construction at two buildings and around two hundred megawats of capacity out of the eight that are being built eight buildings. I mean, based on reports throughout the last two years, Star gay Abilene was meant to be fully energized somewhere between I don't know, the end of twenty twenty five, in the middle of

twenty twenty six. Yet sources on the ground tell me they don't expect this thing to be finished anywhere before April twenty twenty seven, phy a source familiar with Oracle's infrastructure. Building three has finished construction and been handed over, but barely has any gear in it. It'll be months before

it starts generating revenue now. Based on discussions with sources familiar with Stargate Abeleine's infrastructure costs, the total cost will run somewhere in the region of forty eight million dollars per megawat, which is in line with an estimate of around forty four million dollars per megawat for any data center construction that I got from Jerome Darling and analyst

over at TD Cohen. In total, this puts the estimated cost of Stargate Abilene at around fifty nine billion dollars and the overall seven point one gigawa project so far at least and estimated three hundred and forty billion dollars. Sources have also told me the Oracle estimated in twenty twenty four that it would spend over two point one billion dollars a year on co location, lease and power

cost to land developer Cruso. And that's just because Crusoe actually they leased the land from a company called Lancium. They then leased that land and the stuff on it to Oracle, and then Crusoe handles the power and then passes through the cost to Oracle. It's complex, it's annoying,

but that's what it is. Stargate Abilene will, based on estimates from Lando Lanceium and discussions with sources familiar with hyperscalar billing, generate around ten billion dollars a year in revenue when it's complete at a rate of around twelve point five million dollars a megawatt of critical it so

eight hundred and twenty four megawatts. The way it works is, it's a twelve hundred gig sorry, it's a one point two gigawatt campus, but there's only so much of it that's actually critical it that would be billed for, so

eight hundred and twenty four megawat's worth. Now, while this might suggest that Oracle is making eight billion dollars in profit a year, and that's not true, one has to reckon with the astonishing cost of building this data center, and of course other costs like people and keeping like

insurance and stuff. Anyway, each building contains around six hundred and ninety four GB, two hundred NVL, seventy two ras, seventy two GPUs each, each retailing around three and a half million dollars, meaning that each building contains around two point four to three billion dollars of GPUs, for a total of nineteen point four to four billion dollars for the entire campus. As Oracle appreciates those GPUs over six years, that comes to around three point twenty four billion dollars

a year in depreciation costs, so spreading them out. I can also confirm, based on discussions with sources familiar with the Apelien project, that Oracle is footing at either large parts of the entirety of the construction of these data centers and is spent as of recent over five point four billion dollars in construction and infrastructure costs, not including GPUs on just the first two buildings, with an estimate that they'll spend up to ten billion dollars despite it

being operational and there are tons more expenses, though it's very weird now. On a strictly mathematical basis, this means that Oracle will end up, assuming the project is ever completed, spending around sixty billion dollars to build a data center campus that will make it about ten billion dollars of revenue. Inside said data center campus will be racts of seventy two GB two hundred GPUs that are already a year old and will be in theory two years old by

the time that the campus is complete. Now the later data set, the ones that aren't in Abilene will be likely using Nvidia's Vera Rubin GPUs, which means they'll pay a little more. Well, I mean they'll be paid a little more by open Ai again in theory, likely around fourteen million dollars per megawatt, which means, again in theory, Oracle will get paid assuming everything gets built, around seventy five billion dollars a year in revenue from open ai,

if open ai could afford that, which it cannot. For context, open ai estimates it will have around thirty billion dollars in revenue this year and lose twenty five billion dollars to make that. In twenty twenty seven, it projects to pull in sixty two billion dollars in revenue and lose fifty seven billion dollars to make that, and in twenty twenty eight it will lose eighty five billion dollars and

allegedly make one hundred and fifteen billion dollars. Open Ai has also agreed to spend twenty two billion dollars with Core, with one hundred and thirty eight billion dollars with Amazon Web Services, two one hundred and fifty billion dollars with Microsoft,

and twenty billion dollars with Cerebros on compute. Yeah, so for open ai to pay all of its bills, it will have to raise at least another one hundred and fifty billion dollars, and I mean on top of the money it just raised, if not two hundred billion dollars, and that's only only if it makes over one hundred billion dollars in annual revenue by the end of twenty

twenty eight. And if I'm honest, I'm not sure that that maths even makes sense even if it does so, because we don't know the precise year by year breakdown of its other deals. I genuinely think they may be spending if they actually kept the agreements one hundred and twenty five billion dollars in compute by twenty twenty eight. I mean, they don't have the they don't have the money. They can't do that. But nevertheless, it's how is no

one else worried about this? This would, also, by the way, mean that open AI grows its revenue by four times in the next two years and by nearly ten times by twenty thirty. And I think they need to be ten to fifteen times to pay all these fucking bills. Sounds implausible, right, Well, it has to happen otherwise Oracle

runs out of money. In its last quarterly earnings, Oracle had free cash flow of negative twenty four point seven billion dollars and has, through both completed and planned bond sales, debt financing, and at the market share sales, raised over one hundred and fifteen billion dollars, which is not sufficient to complete the construction of the remaining Stargaate data centers.

Oracle has also raised a great deal of that money using construction project financing, keeping the debt off balance sheet, and tying its repayments entirely to cash flow from the various projects revenues that are being paid by open Ai, a company that's going to lose hundreds of billions of dollars in the next few years if it doesn't fall over and die Jesus fucking Christ. If those revenues don't come through, say open a I just didn't pay them, Oracle will be unable to pay its debts. This is

not an opinion, This is maths. It's other businesses Oracles, by the way, In hardware and software licensing, they're plateawing. They have been for quite some time, and its only growth market is renting out AI compute using GPUs that burn out fast and are upgraded on a yearly cycle, meaning that by the time Stargate Abilene is completed, it's black well GPUs will be two or even three years old. In fact, all of Stargate will be full of years

old GPUs if it ever gets completed. Like think about it. Pretty much every data center you know is gonna have obsolete GPUs because if it takes two three years to build one, and these ones are being filled with black well gps, well, by the time the fucking things are done, well, you can have a thing full of years old GPUs. The same thing's gonna happen with Vera Rubin and I don't know the next one. I think they're just gonna call them red Foo. They're gonna name them after one

of the blokes from from LMFAO. He Jensen Wang is a huge LMFAO fan. He's just blasting shots, shots, shot shot shots constantly in video party rock Anthon plays at every board meeting. It's very weird. If you've heard anything, this is all made up. I'm just having some fun. But look, look, look, look I'm deeply confused. Then nobody else is on this. I am genuinely genuinely confused. Where the fuck is my Michael Burry? Michael Burry came back

out of the shadows, Cassandra unchained. He came out of the shadows. He was going to blog about this stuff. He did one blog about depreciation with nvideo and Mata, and then a real big, juicy wet kiss to Jack Clark over anthropic in a supposed debate about the AI bubble that mostly involved Michael Burry saying Claud's so good. I love it so much. What the fuck is the point of someone like Michael fucking Burry if he can't

look at something like this. The numbers are there. Oracle is very likely going to die unless it starts backing away from these data center projects, and all signs point to it accelerating towards building them as fast as possible. Even if it succeeds, open AI cannot afford to pay for them. Seventy five billion dollars a year is so much money. I think Microsoft's operating costs like one hundred and fifty something billion, and Microsoft's very very, very profitable.

When I sat and thought about how I might be wrong about this one or lot, because it's a huge claim to make. But I cannot find a way that Oracle actually makes this work. And every time I tell somebody about it, they just respond with inshallah. Anyway, if you like all the sound of this, check out the premium newsletter that'll be out later today. There's a discount code in the show notes a link. Click it. Please

a principal form of income now. But even if you do not pay to subscribe, there is a generous free section and a summary at the bottom of it that will give you a great deal of the story. You'll be able to get the highlights now. The meat will be in there if you want to pay, but I don't want to get too much of this information. I'll be back next week. I think i'll have an episode on Wednesday. But if I'm honest, if I'm too ill, or if I'm just run down because I had family

in the hospital, I might skip. But I think I've got one in session either way. Catch me on the Reddit, shoot me a slub on pluk, whatever however you want to contact me. I love hearing from you all. Cheers, Love you all. Heyy