Monologue: How OpenAI Kills Oracle

In this week's Better Offline monologue, Ed Zitron runs through how OpenAI must grow its revenue by 1000% in the next three years and raise at least another $200 billion for it to be able to pay its compute deals with Oracle and other providers, and how Oracle dies if OpenAI fails to pay its bills. This week’s free newsletter: https://www.wheresyoured.at/four-horsemen-of-the-aipocalypse/ Premium newsletter out later today - How OpenAI Kills Oracle - save $10 off a year of my premium newsletter: https://edzitronswheresyouredatghostio.outpost.pub/public/promo-subscription/gzqwkv54e1 YOU CAN NOW BUY BETTER OFFLINE MERCH! Go to https://cottonbureau.com/people/better-offline and use code FREE99 for free shipping on orders of $99 or more. --- LINKS: https://www.tinyurl.com/betterofflinelinks Newsletter: https://www.wheresyoured.at/ Reddit: https://www.reddit.com/r/BetterOffline/ Discord: chat.wheresyoured.at https://discord.com/invite/QUUQUP9szv Ed's Socials: https://twitter.com/edzitron https://www.instagram.com/edzitron https://bsky.app/profile/edzitron.com https://www.threads.net/@edzitron Email Me: [email protected] mailto:[email protected] See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

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• 1:30Speaker 04

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• 2:13Ed Zitron?

  Hello and welcome to this week's Better Offline Monologue. I'm your host Ed Zitron.

• 2:25Ed Zitron?

  Forgive 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 will 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, Cerberus and Oracle, it will have to be 10 to 15 times its current revenue and have raised at least another $150 billion. If it fails, Oracle will run out of money and not be able to pay its debts and probably

• 3:07Ed Zitron?

  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 Abeline, 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, eight buildings I mean. Based on reports throughout the last two years, Stargate Abeline was meant to be fully energized somewhere between, I don't know,

• 3:48Ed Zitron?

  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. In total, this puts the estimated cost of Stargate Abilene at around $59 billion and

• 4:31Ed Zitron?

  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 a year on colocation 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

• 5:13Ed Zitron?

  when it's complete, at a rate of around $12.5 million a megawatt of critical IT, so 824 megawatts. The 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

• 5:56Ed Zitron?

  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.

• 6:06Ed Zitron?

  As 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 or 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. Now, 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

• 6:51Ed Zitron?

  that will make it about $10 billion of revenue. Inside said data center campus will be racks of 72 GB 200 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.

• 7:32Ed Zitron?

  For 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 with CoreWeave, $138 billion with Amazon Web Services, $250 billion with Microsoft, and $20 billion with Cerebras on compute.

• 8:04Ed Zitron?

  Yeah, so for OpenAI to pay all of its bills, it will have to raise at least another $150 billion, and I mean on top of the money it just raised, if not $200 billion. And that's only, only if it makes over $100 billion in annual revenue by the end of 2028. 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. Yeah, 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, they don't have the money, like, 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

• 8:48Ed Zitron?

  by four times in the next two years and by nearly 10 times by 2030. And I think they need to be 10 to 15 times to pay all these fucking bills.

• 8:58Ed Zitron?

  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 $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. Jesus fucking Christ.

• 9:43Ed Zitron?

  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. Its 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 Abbeleany 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 gonna have obsolete GPUs, because if it takes two, three years to build one, and these ones are being filled with black

• 10:27Ed Zitron?

  well GPUs, well by the time the fucking things are done, well you're gonna have a thing full of years old GPUs. Same thing's gonna happen with Vera Rubin and, I don't know, the next one. I think they're just gonna call them Redfoo. They're gonna name them after one of the blokes from LMFAO. He, Jensen 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.

• 11:05Ed Zitron?

  Where the fuck is Michael Burry? Michael Burry came back out of the shadows, Cassandra Unchained. He came out of the shadows, he was gonna 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 Anthropic in a supposed debate about the AI bubble that mostly involved Michael Burry saying Claude'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

• 11:47Ed Zitron?

  accelerating towards building them as fast as possible. Even if it succeeds, OpenAI cannot afford to pay for them. Seventy-five billion dollars a year is so much money. I think Microsoft's operating costs like a hundred and fifty something billion, and Microsoft's very, very, very profitable.

• 12:07Ed Zitron?

  And I've sat and thought about how I might be wrong about this one a 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, the highlights. Now the meat 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,

• 12:50Ed Zitron?

  if I'm just rundown because I've had family in the hospital, I might skip, but I think I've got one in, in session. Either way, catch me on the Reddit, shoot me a slub on Plurk, whatever, however you want to contact me. I love hearing from you all. Cheers. Love you all.

• 13:12Speaker 02

  Empower is all about helping you invest well, so you can go out and live a little. And their free Empower Personal Dashboard shows you your full financial life in one place. You'll be able to see your net worth, monitor budgets, analyze your portfolio, set retirement goals and more. Whether you're saving for something big, want to treat yourself, friends or family, or meet long-term goals, Empower helps you see where you stand. You've worked hard for your money and Empower can help you make the most of it. Download the Empower Personal Dashboard or visit empower.com. Not an Empower client paid or sponsored.

• 13:43Speaker 05

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• 14:09Speaker 03

  What if you could make that stop? With LPL Financial, we remove the things holding you back and provide the services to help push you forward. If you're a financial advisor, what if you could have more freedom, but also more support? Ready to invest? What if you could have an advisor that really understood you? When it comes to your finances, your business, your future, at LPL Financial, we believe the only question should be, what if you could?

• 14:36Speaker 04

  Paid advertisement. Anna Kendrick is not a client of LPL Financial LLC and receives compensation to promote LPL. Investing involves risk, including potential on to principal LPL Financial LLC member FINRA/IPC.

• 14:43Speaker 03

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• 14:56Speaker 07

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• 15:43Speaker 00

  This is an iHeart Podcast. Guaranteed Human.