Oracle Could Force AI Giants to Pause Spending—Stocks Might Soar
Oracle’s caution may slow hyperscaler AI spending. OpenAI, Microsoft, Google, Amazon, and Meta could see stock shifts as debt concerns rise.
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If Oracle applies stricter financial discipline, the enormous AI infrastructure spending by the big technology companies might slow down, as per CNBC's Jim Cramer.
On Tuesday, Cramer pointed out that the industry is under pressure due to the huge investments in AI, especially in the creation of large data centers. He remarked that Oracle, which is an OpenAI partner, has to be very cautious so that its debt does not spiral out of control.
"Oracle's debt is huge, and its financial health is not strong. They might have to slow down because of the market pressure," observed Cramer. "The data centers are extremely expensive, and even the best builders can make mistakes. Oracle cannot risk its balance sheet for the sake of OpenAI's growth. That could be the time when the industry starts correcting itself."
Cramer listed Amazon, Microsoft, Google, Meta, and OpenAI with Oracle as the five biggest companies investing in AI. These tech giants are not only increasing their data center capacity at a fast rate but also attempting to keep the competitors out of their main market areas.
Cramer clarified that this heavy investment was one of the reasons for the lowering of stock prices of the companies involved. He denounced the "unrestrained data center spending" and pointed out that OpenAI, being funded by venture capital, is prepared to spend at the most lavish level, subsequently, compelling other companies to keep up. OpenAI has made a commitment of more than $300 billion for the Oracle technology over the coming five years, with the total commitments from several partners reaching $1.4 trillion.
The latest $18 billion bond issuance by Oracle has attracted the attention of investors who have now resorted to buying credit default swaps as a hedge against a possible default. In Cramer’s view, if Oracle decides to curtail its capital expenditure, the other hyperscalers might do the same which would in turn benefit the stock performance.
“This approach grants Oracle the chance to keep its position firm and at the same time compels OpenAI to prioritize its strategy. Trying to defend all fronts will drain the resources too much,” he posited.
There was no immediate response from either Oracle or OpenAI regarding the requests for their comments.
