Monologue: OpenAI Could Kill SoftBank and Oracle

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2:10Better Offline. Folks, it's been a long few months and I've taken the vast majority of this week off to recover after writing about 100 ,000, 200 ,000 words in the last few months, not even including my upcoming book, The Hater's Guide to Silicon Valley, coming out in 2027. If you want to support my work, I'm currently doing a week-long sale for the premium newsletter, $10 off the annual rate for life. That'll be in the notes. Please do, if you feel like supporting me, do that. Newsletters and the podcasts are now my principal source of income. It's happened. The era of smiles has begun. Join me and receive the bounties of words every week, except this one as I'm taking the week off.

2:47So let's begin. And I wanted to start by saying how you, the listener, might help me. First of all, my signal is eZitron.76. The things I'm looking for right now that would help me are Anthropics S1 or any and all documentation of its cloud spend and financial condition, especially if you can get me something from Amazon Web Services or Google Cloud that shows me how much this company is spending. That'd be very, very helpful to me. As would any and all information about the AI revenues of any major tech company that aren't public knowledge, and any and all information about the cloud spend of OpenAI, Anthropic, Perplexity, or any other major AI startup, and of course, any of the financials of any AI startup you can get me.

3:26The same goes for token spend at any corporation. Please use Signal. Please take photos of any documents. Do not send me PDFs. Do not send me documents for your safety and for mine. And please, please, please, do not send me stuff that's already public. This isn't because I'm chiding you. I'm just saying people get excited and they want to help and they send me stuff that's already out there. I've probably already seen it. I'm a freak. I'm looking at this stuff all day. All right, folks, let's roll to the actual monologue. So earlier in the week, I put out a 15 ,000 word piece called the OpenAI Bubble, a massive guide to how OpenAI is the cause, enabler, and justification for the entire AI bubble writ large and how everything kind of collapses when it dies.

4:06I wrote it because I've heard a lot of people say it's an OpenAI Bubble, not an AI Bubble over the last year as a way of waving off potential detractors, suggesting that OpenAI could collapse and everything else would be left behind and fine. You're living in a bubble yourself if you think this way. That's a crazy way to live one's life. And please, please, please stop emailing me about the bailout. I've gone over the summiters. Anyway, in truth, OpenAI is the largest consumer of AI compute, accounts for over$800 billion of remaining performance obligations across hyperscalers and neoclouds, the people that rent out AI GPUs and basically just exist to funnel NVIDIA money, and likely over$100 billion of the future revenues of Broadcom and NVIDIA themselves.

4:46I go into detail about it in the piece, but I kind of wanted to go over it a little today in today's monologue too. OpenAI is also a material risk to both SoftBank and Oracle. If OpenAI can't go public, SoftBank is going to face a massive liquidity crisis. It has$45.9 billion in debt that matures within the next 12 months, and they'll either they have to refinance it or pay it. Except that's going to be much more difficult, because they've jettisoned most of its valuable stocks in T-Mobile and NVIDIA, all while pushing up against the limits of what it can borrow against its holdings in the chipmaker arm, which it bought, I think, 2023 for$32 billion, it went public at$50 billion, but the holdings are worth hundreds of billions of dollars.

5:29Except that's kind of a problem, which I'll get to in a minute. But SoftBank will never truly go bankrupt. That doesn't mean it's not a problem if OpenAI fails, because it would be put in a historic crisis, one worse than the dot-com bubble, where Masayoshi's done a bit everything in, like, GeoCities, and even the horrors of 2022 and 2023, when the Vision funds had losses of, what,$32 billion. Back then, SoftBank had plenty of other valuable stock and ways to raise debt. They had the Alibaba stock, they had their holdings in Betfair and other things like that. except most of that is gone now and now S &P Global has downgraded its outlook to negative which means they think they might actually downgrade its credit in the future and just to be clear they specified that the reason that S &P did that was OpenAI.

6:17They said the words, they literally said it was the case except now what the hell is SoftBank meant to do? It doesn't have anything else to flog really other than its ARM stock and the problem there is that SoftBank is the largest holder of Arm stock in the world, which makes it difficult for it to liquidate too much without spooking the market. Think of it like this, if the largest holder of a stock says, I'm just going to start selling it off for liquidity, it officially stops being about the stock in question, but the company's selling it. The value of Arm will turn into a bet on whether SoftBank can afford to pay its own bills.

6:50It's already taken out a bunch of margin loans on the stock, and further loans will be difficult to raise for the very same reason. While it would be likely rescued by the bank of japan and other local financial institutions there has never been a more dangerous time for masayoshi's son check out my haters guide to softbank i know it's a premium thing but there's a deal going on it's a beautiful deal i stopped in the trump impression now and get on to one of his friends oracle now in oracle's case its entire future rides on open ai's ability to pay it about 70 billion dollars a year in annual revenue and that rides on oracle's ability to build about 7.1 gigawatts or so of data center capacity in the next two or three years.

7:31I'm not kidding. It's genuinely, that's what they need to do. Oracle and OpenAI have a$300 billion contract that's meant to have started on June 1st, 2026, with said revenue coming from the Stargate data centers that Oracle is building for Clammy Sammy. That's right, Mr. Altman, clamuel we don't like him the problem of course is that 7.1 gigawatts of capacity needs to be built and barely 400 megawatts of it actually exist and that's in stock a abilene a project that broke ground in the middle of 2024 and was meant to be done either the end of last year or a couple of weeks ago and everything i hear from the people inside oracle is that they keep firing all the people who know how the fucking business works it's a terrible thing for them oh and uh another thing is that oracle literally warned in its annual report that it may or may not get paid by open ai and that said non-payment would potentially also mean that it couldn't lease the gpu capacity to anyone else as in no one else really exists that could buy it and if they did manage to sell it to them it'd be at a massive loss is that good also tell me is it good that s &p global also downgraded oracle just one step above junk grade they're barely investment grade credit wise for now fallen angel status on incoming maybe i'll explain what that means another monologue you don't really care let's get to the funny stuff though larry ellison ceo of oracle sorry chairman of oracle ceo is currently two different mr bean type characters he's also used 346 million of his 1.16 billion oracle shares for an estimated 21 billion dollars of margin loans personal ones just to be clear.

9:11Otherwise, he has about$10 billion in cash and$15 billion in Tesla shares. Why do you care about that? Well, this is material, because he also has to conjure up about$20 billion in cash, actual cash, to push through the Paramount Warner Brothers deal by September 30th, otherwise he gets fined about$500-600 million a quarter. And to do so, regardless of whether it happens, whether it's stopped by then or whether it's meant to go through, he's likely going to have to take out further margin loans on his Oracle stock, and depending on how said stock is doing, getting that loan might be quite problematic.

9:44I think I just said problematic, but I'm just going to keep on going.

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12:03So to explain, a margin loan works by offering up a certain amount of shares as collateral, a little like a mortgage. So if you were taking out a 25 % loan-to-value loan for$1 billion, you'd offer up about$250 million in stock, maybe a little more depending on how volatile it is. When the value of said stock drops below a certain amount, you get forced to do something called a margin call. Well, a margin call happens to, I mean. Where you're forced to either proffer up more cash to cover the shortfall, or far more likely in Ellison's case, give up more Oracle stock. The problem that Ellison faces is the very same one that SoftBank has with Arm.

12:39He owns 40 % of Oracle's shares, which means that liquidating them would be very difficult. If he started selling them off, the market would say, oh Christ, is he going to sell his 40 % holdings in Oracle? Sell, sell it all. The piss index is crashing. And to make matters worse, he's collateralized over$50 billion worth of Oracle shares, the ones I mentioned earlier, which means that if Oracle's stock drops below, say, I don't know,$60 a share, he'll be put in a vicious cycle where he'll either have to hand over more and more shares to cover the shortfall, or worse still, have to sell them to keep up.

13:13Hey, hey, stop laughing. Stop it. Stop laughing. Mr. Ellison is in real trouble. Larry Ellison could be in a real pickle. Stop it. I'm just kidding. Fuck Larry Ellison. Anyway, the worst part is that OpenAI doesn't even have to collapse for this to happen. The AI bubble isn't based on anyone's actual revenues, productivity, or ROI. No hyperscaler actually reports their AI revenues. Oracle kind of bundles them within OCI, their infrastructure, bucket. And outside of OpenAI and Anthropic, the industry is actually incredibly small revenue-wise. Very loud and annoying, though. The markets have conflated a CapEx bubble, as in buying GPUs and the surrounding gear for data centers, with a thriving AI industry, which is a nice way of saying that the current slate of prices for Microsoft, Google, Amazon, Meta, and Oracle, and their current AI-focused bumps, are based on vibes and mania.

14:06Vibes can break. Mania subsides. All it takes for things to go pear-shaped is for the market to believe, to become convinced that Oracle won't get paid by OpenAI for them to start dumping the stock. All they have to believe is that all of that capex, all of that negative cash flow is just for nothing, is for a company that either won't exist or won't be able to actually afford all of that data center capacity. Every time I say this out loud, I feel crazy. The biggest myth, though, about Oracle is that it's this healthy, profitable business, and that this AI thing is just yet more good stuff that they've added on top, when in fact every other business segment other than renting out AI GPUs is either plateaued or in active decline, meaning that Oracle's entire future rides on whether it can monetize its FinDOM relationship with NVIDIA and Jensen Wang.

15:02And really, Oracle's story is fundamentally insane right now. It's spending$340 billion or more on AI data center capacity for one client, OpenAI, in the hopes that OpenAI can bring it$70 billion a year in revenue for a contract that began a month ago, except most of the capacity is barely under construction, and because data centers take 18 to 36 months to build, it's unlikely that more than a single gigawatt will be ready before the beginning of 2028, if at all. Building this capacity is costly, and Oracle's cash flow has been negative$20 billion or worse for the last two quarters, with plans to spend another$90 billion in the next fiscal year, which just begun in June.

15:45The 22 ,000 people that it laid off in the past six months were, based on discussions with many sources, load-bearing parts of its infrastructure, throwing parts of the business into active chaos, and genuinely causing problems with renewals for its Oracle database products that are the cornerstone of how Larry Ellison's heart beats. I don't know what to say. I don't know. I am just a guy. Why am I the one that found this? It's sitting in broad daylight. Maybe people just don't do mathematics. I don't know. But this is quite bad. And the point I'm making, though, just to simplify, is that for me to be wrong open ai will have to bring in hundreds of billions of dollars a year in revenue for themselves by 2030 which will require it to become either profitable massively profitable too like not just like a little bit of a bit the profitability i mean 20 30 40 billion dollars a year plus or just continually raise money i'm talking hundreds of billions of dollars a year and no no government bailout will cover the shortfall the government's talking about five percent share, that'd be$42 billion.

16:52That won't even cover their fucking inference costs if they last to 2027. It's a joke. Oh, and by the way, even if OpenAI does that, Oracle will have to complete the single most ambitious construction project of all time. Building enough power to power multiple cities, erecting giant data centers in multiple states, make them fully operational with far less people and a shortage of both talent and the core materials like electrical grade steel and also do so on a timeline that doesn't put it in breach of contract with open ai would it shock you if i told you that this is considered radical thinking would you be surprised if i told you that many journalists simply shrug when you tell them this and they go they'll work it out they'll work it out it'll all work out it'll work out don't worry about it ed you're crazy ed ed why are you outside my office why are you dressed as a duck why do you keep saying I'm the deterioration duck.

17:50Quack, quack, quack, the market's going to hell. And the answer is, that's a bit I'm working on that I'll go to later. In any case, I am kidding. And I do need to say, the future really is one strewn with chaos and carcasses. And I'm not sure the world is actually ready for it, thanks to a captured media industry that refuses to do the messy work of reconciling with the projections that range from unrealistic to fantastical. when the time comes people are going to be asking why we didn't see this coming and as i've said before it's because nobody wanted to fucking look anyway thanks as ever for listening things are going to get real interesting over the next few months i just got me a bloomberg terminal and it's a source of unfathomable power that i believe will take my coverage to the next level if you're on there shoot me a message shoot me a goot on ploop that's another social network on man and uh I really do genuinely deeply and meaningfully appreciate the many wonderful messages and emails I receive every day.

18:46And I'm so grateful to have such incredible fans and followers. You're all amazing. Like I hear from so many of you and you're very thoughtful and smart and you pick this stuff up very quickly. I love you all. And I assume you'll bellow. We love you, chef, in response. See you next week.

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