Monologue: How OpenAI Kills Oracle

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2:09Call Zone Media. Hello and welcome to this week's Better Offline Monologue. I'm your host, Ed Zitron.

2:24forgive me if i sound a little congested i'm sick i promise i'm resting up but this is an important one today i'm going to talk to you about something i'm brewing over in my premium newsletter it'll be out later today but this is information you need to know and don't need to cough up money to find out there'll be more details but you're going to get a lot today So I want to be very clear about something. For OpenAI to be able to pay the deals it has signed with all of these different companies, Amazon, Microsoft, CoreWeave, Cerebrus, and Oracle, it will have to be 10 to 15 times its current revenue and have raised at least another$150 billion.

3:01If 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 has been around for so long. But let me explain. Oracle is building around 7.1 gigawatts of data center capacity for OpenAI, with the majority of it looking like it will be finished somewhere towards the end of 2028, at absolute best, if not the end of 2029 or 2030, if it ever gets built. Stargate Abilene, the only one of them anywhere near completion, started in the middle of 2024, sits two years into construction at two buildings and around 200 megawatts of capacity out of the eight that are being built.

3:41Eight buildings, I mean. Based on reports throughout the last two years, Stargate Abilene was meant to be fully energized somewhere between, I don't know, the end of 2025 and the middle of 2026, yet sources on the ground tell me they don't expect this thing to be finished anywhere before April 2027. Per a source familiar with Oracle's infrastructure, Building 3 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 Abilene's infrastructure, costs, the total cost will run somewhere in the region of$48 million per megawatt, which is in line with an estimate of around$44 million per megawatt for any data center construction that I got from Jerome Darling, an analyst over at TD Cohen.

4:25In total, this puts the estimated cost of Stargate Abilene at around$59 billion and the overall 7.1 gigawatt project, so far at least, at an estimated$340 billion. Sources have also told me that Oracle estimated in 2024 that it would spend over 2.1 billion dollars a year on co-location lease and power costs to land developer Crusoe and that's just because Crusoe actually they lease the land from a company called Lancium they then lease 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 landowner Lancium and discussions with sources familiar with hyperscaler billing, generate around$10 billion a year in revenue when it's complete at a rate of around$12.5 million a megawatt of critical IT, so 824 megawatts.

5:20The way it works is it's a 1.2 gigawatt campus, but there's only so much of it that's actually critical IT that would be billed for, so 824 megawatts worth. Now, while this might suggest that Oracle is making$8 billion 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 694 GB200 NVL72 racks, 72 GPUs each, each retailing around$3.5 million, meaning that each building contains around$2.43 billion of GPUs, for a total of$19.44 billion for the entire campus.

6:06As Oracle depreciates those GPUs over six years, that comes to around$3.24 billion a year in depreciation costs, so spreading them out. I can also confirm, based on discussions with sources familiar with the Abilene project, that Oracle is footing either large parts of the entirety of the construction of these data centers, and has spent, as of recent, over$5.4 billion in construction and infrastructure costs, not including GPUs, on just the first two buildings, with an estimate that they'll spend up to$10 billion, despite it being operational. And there are tons more expenses still. It's very weird.

6:41Now, on a strictly mathematical basis, this means that Oracle will end up, assuming the project is ever completed, spending around$60 billion to build a data center campus that will make it about$10 billion of revenue. Inside said data center campus will be racks of 72 GB200 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 centers, 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 OpenAI, again, in theory, likely around$14 million per megawatt, which means, again, in theory, Oracle will get paid, assuming everything gets built, around$75 billion a year in revenue from OpenAI, if OpenAI could afford that, which it cannot.

7:32For context, OpenAI estimates it will have around$30 billion in revenue this year and lose$25 billion to make that. In 2027, it projects to pull in$62 billion in revenue and lose$57 billion to make that. And in 2028, it will lose$85 billion and allegedly make$115 billion. OpenAI has also agreed to spend$22 billion dollars with CoreWeave, 138 billion dollars with Amazon Web Services, 250 billion dollars with Microsoft, and 20 billion dollars with Cerebrus on Compute. Yeah, so for OpenAI to pay all of its bills, it will have to raise at least another 150 billion dollars, and I mean on top of the money it just raised, if not 200 billion dollars, and that's only, only if it makes over 100 billion dollars in annual revenue by the end of 2028.

8:20And 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,$125 billion in compute by 2028. I mean, 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 OpenAI grows its revenue by four times in the next two years and by nearly 10 times by 2030, and I think they need to be 10-15 times to pay all these fucking bills. Sounds implausible, right?

8:59Well, it has to happen, otherwise Oracle runs out of money. In its last quarterly earnings, Oracle had free cash flow of negative$24.7 billion and has, through both completed and planned bond sales, debt financing and at-the-market share sales, raised over$115 billion, which is not sufficient to complete the construction of the remaining Stargate 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 OpenAI, 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.

9:41Jesus fucking Christ. If those revenues don't come through, say OpenAI 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, Oracle's by the way, in hardware and software licensing. They're plateauing. 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, its Blackwell 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 going to have obsolete gpus because if it takes two three years to build one and these ones are being filled with black world gps well by the time the fucking things are done well you can have a thing full of years old gpus same thing's going to happen with vera rubin and i don't know the next one i think they're just going to call them um red foo they're going to name them after one of the blokes from LMFAO.

10:41Jensen Huang is a huge LMFAO fan. He's just blasting shots, shots, shots, shots, shots constantly at NVIDIA. Party Rock Anthem 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 that nobody else is on this. I am genuinely, genuinely confused. Where the fuck is 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 NVIDIA and Meta, and then a real big juicy wet kiss to Jack Clark over at Anthropic in a supposed debate about the AI bubble that mostly involved Michael Burry saying, Claude's so good, I love it so much.

11:32What the fuck is the point of someone like Michael fucking Barry 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, OpenAI cannot afford to pay for them. $75 billion a year is so much money. I think Microsoft's operating costs like 150 something billion and Microsoft's very, very, very profitable. And I sat and thought about how I might be wrong about this one a lot because it's a huge claim to make.

12:11But 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 will be out later today. There's a discount code in the show notes 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 the highlights now the beat will be in there if you want to pay but i don't want to gate 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 if i'm just run down because i've had family in the hospital i might skip but I think I've got one in session.

12:56Either way, catch me on the Reddit. Shoot me a slub on Plurk. However you want to contact me. I love hearing from you all. Cheers. I love you all.

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