Speaker 1: Cauzone Media. Hello on, Welcome to this week's Better Offline Monologue.
Speaker 1: I'm your host ed z tron. Forgive me if I
Speaker 1: sound a little congested. I'm sick. I promise I'm resting up.
Speaker 1: But this is an important one today. I'm going to
Speaker 1: talk to you about something I'm brewing over in my
Speaker 1: premium newsletter. It'll be out later today, but this is
Speaker 1: information you need to know and don't need to cough
Speaker 1: up money to find out. There'll be more details, but
Speaker 1: you're going to get a lot today. So I want
Speaker 1: to be very clear about something. For open Ai to
Speaker 1: be able to pay the deals it is signed with
Speaker 1: all of these different companies Amazon, Microsoft, Core, with seah
Speaker 1: Brus and Oracle, it will have to be ten to
Speaker 1: fifteen times its current revenue and have raised at least
Speaker 1: another one hundred and fifty billion dollars. If it fails,
Speaker 1: Oracle will run out of money and not be able
Speaker 1: to pay its debts and probably shut down. And I
Speaker 1: know that sounds insane because Oracle is so large and
Speaker 1: it has been around for so long, but let me explain.
Speaker 1: Oracle is building around seven point one gigawatts of data
Speaker 1: center capacity for open AI with the majority of it
Speaker 1: looking like it will be finished somewhere towards the end
Speaker 1: of twenty twenty eight at absolute best, if not the
Speaker 1: end of twenty twenty nine or twenty thirty if it
Speaker 1: ever gets built. Star Gay Abilene, the only one of
Speaker 1: them anywhere near completion, started in the middle of twenty
Speaker 1: twenty four. Sits two years into construction at two buildings
Speaker 1: and around two hundred megawats of capacity out of the
Speaker 1: eight that are being built eight buildings. I mean, based
Speaker 1: on reports throughout the last two years, Star gay Abilene
Speaker 1: was meant to be fully energized somewhere between I don't know,
Speaker 1: the end of twenty twenty five, in the middle of
Speaker 1: twenty twenty six. Yet sources on the ground tell me
Speaker 1: they don't expect this thing to be finished anywhere before
Speaker 1: April twenty twenty seven, phy a source familiar with Oracle's infrastructure.
Speaker 1: Building three has finished construction and been handed over, but
Speaker 1: barely has any gear in it. It'll be months before
Speaker 1: it starts generating revenue now. Based on discussions with sources
Speaker 1: familiar with Stargate Abeleine's infrastructure costs, the total cost will
Speaker 1: run somewhere in the region of forty eight million dollars
Speaker 1: per megawat, which is in line with an estimate of
Speaker 1: around forty four million dollars per megawat for any data
Speaker 1: center construction that I got from Jerome Darling and analyst
Speaker 1: over at TD Cohen. In total, this puts the estimated
Speaker 1: cost of Stargate Abilene at around fifty nine billion dollars
Speaker 1: and the overall seven point one gigawa project so far
Speaker 1: at least and estimated three hundred and forty billion dollars.
Speaker 1: Sources have also told me the Oracle estimated in twenty
Speaker 1: twenty four that it would spend over two point one
Speaker 1: billion dollars a year on co location, lease and power
Speaker 1: cost to land developer Cruso. And that's just because Crusoe
Speaker 1: actually they leased the land from a company called Lancium.
Speaker 1: They then leased that land and the stuff on it
Speaker 1: to Oracle, and then Crusoe handles the power and then
Speaker 1: passes through the cost to Oracle. It's complex, it's annoying,
Speaker 1: but that's what it is. Stargate Abilene will, based on
Speaker 1: estimates from Lando Lanceium and discussions with sources familiar with
Speaker 1: hyperscalar billing, generate around ten billion dollars a year in
Speaker 1: revenue when it's complete at a rate of around twelve
Speaker 1: point five million dollars a megawatt of critical it so
Speaker 1: eight hundred and twenty four megawatts. The way it works is,
Speaker 1: it's a twelve hundred gig sorry, it's a one point
Speaker 1: two gigawatt campus, but there's only so much of it
Speaker 1: that's actually critical it that would be billed for, so
Speaker 1: eight hundred and twenty four megawat's worth. Now, while this
Speaker 1: might suggest that Oracle is making eight billion dollars in
Speaker 1: profit a year, and that's not true, one has to
Speaker 1: reckon with the astonishing cost of building this data center,
Speaker 1: and of course other costs like people and keeping like
Speaker 1: insurance and stuff. Anyway, each building contains around six hundred
Speaker 1: and ninety four GB, two hundred NVL, seventy two ras,
Speaker 1: seventy two GPUs each, each retailing around three and a
Speaker 1: half million dollars, meaning that each building contains around two
Speaker 1: point four to three billion dollars of GPUs, for a
Speaker 1: total of nineteen point four to four billion dollars for
Speaker 1: the entire campus. As Oracle appreciates those GPUs over six years,
Speaker 1: that comes to around three point twenty four billion dollars
Speaker 1: a year in depreciation costs, so spreading them out. I
Speaker 1: can also confirm, based on discussions with sources familiar with
Speaker 1: the Apelien project, that Oracle is footing at either large
Speaker 1: parts of the entirety of the construction of these data
Speaker 1: centers and is spent as of recent over five point
Speaker 1: four billion dollars in construction and infrastructure costs, not including
Speaker 1: GPUs on just the first two buildings, with an estimate
Speaker 1: that they'll spend up to ten billion dollars despite it
Speaker 1: being operational and there are tons more expenses, though it's
Speaker 1: very weird now. On a strictly mathematical basis, this means
Speaker 1: that Oracle will end up, assuming the project is ever completed,
Speaker 1: spending around sixty billion dollars to build a data center
Speaker 1: campus that will make it about ten billion dollars of revenue.
Speaker 1: Inside said data center campus will be racts of seventy
Speaker 1: two GB two hundred GPUs that are already a year
Speaker 1: old and will be in theory two years old by
Speaker 1: the time that the campus is complete. Now the later
Speaker 1: data set, the ones that aren't in Abilene will be
Speaker 1: likely using Nvidia's Vera Rubin GPUs, which means they'll pay
Speaker 1: a little more. Well, I mean they'll be paid a
Speaker 1: little more by open Ai again in theory, likely around
Speaker 1: fourteen million dollars per megawatt, which means, again in theory,
Speaker 1: Oracle will get paid assuming everything gets built, around seventy
Speaker 1: five billion dollars a year in revenue from open ai,
Speaker 1: if open ai could afford that, which it cannot. For context,
Speaker 1: open ai estimates it will have around thirty billion dollars
Speaker 1: in revenue this year and lose twenty five billion dollars
Speaker 1: to make that. In twenty twenty seven, it projects to
Speaker 1: pull in sixty two billion dollars in revenue and lose
Speaker 1: fifty seven billion dollars to make that, and in twenty
Speaker 1: twenty eight it will lose eighty five billion dollars and
Speaker 1: allegedly make one hundred and fifteen billion dollars. Open Ai
Speaker 1: has also agreed to spend twenty two billion dollars with Core,
Speaker 1: with one hundred and thirty eight billion dollars with Amazon
Speaker 1: Web Services, two one hundred and fifty billion dollars with Microsoft,
Speaker 1: and twenty billion dollars with Cerebros on compute. Yeah, so
Speaker 1: for open ai to pay all of its bills, it
Speaker 1: will have to raise at least another one hundred and
Speaker 1: fifty billion dollars, and I mean on top of the
Speaker 1: money it just raised, if not two hundred billion dollars,
Speaker 1: and that's only only if it makes over one hundred
Speaker 1: billion dollars in annual revenue by the end of twenty
Speaker 1: twenty eight. And if I'm honest, I'm not sure that
Speaker 1: that maths even makes sense even if it does so,
Speaker 1: because we don't know the precise year by year breakdown
Speaker 1: of its other deals. I genuinely think they may be
Speaker 1: spending if they actually kept the agreements one hundred and
Speaker 1: twenty five billion dollars in compute by twenty twenty eight.
Speaker 1: I mean, they don't have the they don't have the money.
Speaker 1: They can't do that. But nevertheless, it's how is no
Speaker 1: one else worried about this? This would, also, by the way,
Speaker 1: mean that open AI grows its revenue by four times
Speaker 1: in the next two years and by nearly ten times
Speaker 1: by twenty thirty. And I think they need to be
Speaker 1: ten to fifteen times to pay all these fucking bills.
Speaker 1: Sounds implausible, right, Well, it has to happen otherwise Oracle
Speaker 1: runs out of money. In its last quarterly earnings, Oracle
Speaker 1: had free cash flow of negative twenty four point seven
Speaker 1: billion dollars and has, through both completed and planned bond sales,
Speaker 1: debt financing, and at the market share sales, raised over
Speaker 1: one hundred and fifteen billion dollars, which is not sufficient
Speaker 1: to complete the construction of the remaining Stargaate data centers.
Speaker 1: Oracle has also raised a great deal of that money
Speaker 1: using construction project financing, keeping the debt off balance sheet,
Speaker 1: and tying its repayments entirely to cash flow from the
Speaker 1: various projects revenues that are being paid by open Ai,
Speaker 1: a company that's going to lose hundreds of billions of
Speaker 1: dollars in the next few years if it doesn't fall
Speaker 1: over and die Jesus fucking Christ. If those revenues don't
Speaker 1: come through, say open a I just didn't pay them,
Speaker 1: Oracle will be unable to pay its debts. This is
Speaker 1: not an opinion, This is maths. It's other businesses Oracles,
Speaker 1: by the way, In hardware and software licensing, they're plateawing.
Speaker 1: They have been for quite some time, and its only
Speaker 1: growth market is renting out AI compute using GPUs that
Speaker 1: burn out fast and are upgraded on a yearly cycle,
Speaker 1: meaning that by the time Stargate Abilene is completed, it's
Speaker 1: black well GPUs will be two or even three years old.
Speaker 1: In fact, all of Stargate will be full of years
Speaker 1: old GPUs if it ever gets completed. Like think about it.
Speaker 1: Pretty much every data center you know is gonna have
Speaker 1: obsolete GPUs because if it takes two three years to
Speaker 1: build one, and these ones are being filled with black
Speaker 1: well gps, well, by the time the fucking things are done, well,
Speaker 1: you can have a thing full of years old GPUs.
Speaker 1: The same thing's gonna happen with Vera Rubin and I
Speaker 1: don't know the next one. I think they're just gonna
Speaker 1: call them red Foo. They're gonna name them after one
Speaker 1: of the blokes from from LMFAO. He Jensen Wang is
Speaker 1: a huge LMFAO fan. He's just blasting shots, shots, shot
Speaker 1: shot shots constantly in video party rock Anthon plays at
Speaker 1: every board meeting. It's very weird. If you've heard anything,
Speaker 1: this is all made up. I'm just having some fun.
Speaker 1: But look, look, look, look I'm deeply confused. Then nobody
Speaker 1: else is on this. I am genuinely genuinely confused. Where
Speaker 1: the fuck is my Michael Burry? Michael Burry came back
Speaker 1: out of the shadows, Cassandra unchained. He came out of
Speaker 1: the shadows. He was going to blog about this stuff.
Speaker 1: He did one blog about depreciation with nvideo and Mata,
Speaker 1: and then a real big, juicy wet kiss to Jack
Speaker 1: Clark over anthropic in a supposed debate about the AI
Speaker 1: bubble that mostly involved Michael Burry saying Claud's so good.
Speaker 1: I love it so much. What the fuck is the
Speaker 1: point of someone like Michael fucking Burry if he can't
Speaker 1: look at something like this. The numbers are there. Oracle
Speaker 1: is very likely going to die unless it starts backing
Speaker 1: away from these data center projects, and all signs point
Speaker 1: to it accelerating towards building them as fast as possible.
Speaker 1: Even if it succeeds, open AI cannot afford to pay
Speaker 1: for them. Seventy five billion dollars a year is so
Speaker 1: much money. I think Microsoft's operating costs like one hundred
Speaker 1: and fifty something billion, and Microsoft's very very, very profitable.
Speaker 1: When I sat and thought about how I might be
Speaker 1: wrong about this one or lot, because it's a huge
Speaker 1: claim to make. But I cannot find a way that
Speaker 1: Oracle actually makes this work. And every time I tell
Speaker 1: somebody about it, they just respond with inshallah. Anyway, if
Speaker 1: you like all the sound of this, check out the
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Speaker 1: a principal form of income now. But even if you
Speaker 1: do not pay to subscribe, there is a generous free
Speaker 1: section and a summary at the bottom of it that
Speaker 1: will give you a great deal of the story. You'll
Speaker 1: be able to get the highlights now. The meat will
Speaker 1: be in there if you want to pay, but I
Speaker 1: don't want to get too much of this information. I'll
Speaker 1: be back next week. I think i'll have an episode
Speaker 1: on Wednesday. But if I'm honest, if I'm too ill,
Speaker 1: or if I'm just run down because I had family
Speaker 1: in the hospital, I might skip. But I think I've
Speaker 1: got one in session either way. Catch me on the Reddit,
Speaker 1: shoot me a slub on pluk, whatever however you want
Speaker 1: to contact me. I love hearing from you all. Cheers,
Speaker 1: Love you all. Heyy