Platformonomics TGIF is a weekly roll-up of links, comments on those links, and perhaps a little too much tugging on my favorite threads.
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Wouldn’t it be ironic if the next credit crisis was not caused by AI, but by more mundane actors like auto parts conglomerates, used car resellers, and typically overzealous (except in their due diligence) financial actors?
News
Did OpenAI Find the Money This Week?
Announcing spending plans is easy. Paying for them is hard. Especially when the funding gap is hundreds of billions of dollars.
The OpenAI not having the money to pay for all their ambitions post hit #1 on Hacker News, which is a great way to stress test your server.
I analogized to the Financial Times about the perils of vendor financing:
Nvidia has become “the central bank of AI, they’re the lender of last resort”
Matt Levine, “a connoisseur of financial shenanigans”, said of OpenAI:
“It really is the greatest business plan in the history of capitalism: “We will create God and then ask it for money.” Perfect in its simplicity.”
We will continue to monitor the situation!
They Still Don’t Have the Margins: Oracle Edition
But Oracle has found it challenging to generate a gross margin of more than 25% from renting out Nvidia chips that came out one or two years ago, according to a new internal Oracle document that hasn’t been previously reported.
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They Don’t Have the Margins, They Don’t Have the Money, They Don’t Have the Money: Oracle and Tik Tok, Remaining CAPEX Obligation, Why Can’t Oracle Afford Data Centers?, Why Can’t Oracle Build Data Centers?, Oracle Still Can’t Build Data Centers, Oracle’s Data Center Difficulties, Oracle’s Data Center Difficulties: FY25 Q1, Oracle’s Data Center Difficulties: FY25 Q2, ClownWatch™: Oracle FY25 Q3, Why Can’t Oracle Build Data Centers? FY25 Q4 Edition, Words are Cheap, CAPEX is Expensive: Oracle Edition, Why Can’t Oracle Build Data Centers? (Or Subcontract Them?), Follow the CAPEX: The Clown Car Race Checkered Flag, Stargate Struggles to Get Out of Gate, Stargate: “Science fiction, just like the movie it is named after”, CAPEX Clues: The B Word, And You Thought Softbank Was the Dumb Money, Follow the CAPEX: Cloud Table Stakes 2024 Retrospective, Stargate: So Many Mouths to Feed, CAPEX Clues: Softbank Needs More Cash, Stargate: $5 Trillion and Counting, Stargate: A New Hope?
They Don’t Have the CAPEX: Oracle Edition
Oracle, a They Don’t Have the Money OG company (henceforth TDHTMOG), briefed financial analysts this week on its plans for revenue to explode by hundreds of billions of dollars:
There were enough gaps in Oracle’s projections to make analysis difficult. For instance, while Oracle ran through the different margin profiles and growth rates of its cloud business segments, we didn’t learn how big each segment was. Magouyrk also acknowledged some uncertainty about the margins for AI data center cloud, given how the cost of chips varies based on type, among other things. Even the time frame for the projected AI cloud margins was a little fuzzy.
We also got no details about future capital expenditures to develop the new data centers. Capex spending at Oracle has lately risen so high that Oracle as a company burned cash last fiscal year. Analysts expect Oracle to burn $7.5 billion in cash a year for the next three years, according to S&P Global Market Intelligence.
I’m taking the over on CAPEX spend if they want to turn those RPO dreams into revenue. No CAPEX, no infrastructure. No infrastructure, no revenue.
Save It for Later: 2030 Forecast Club
The company even updated the bullish numbers that sent the stock soaring last month, projecting that revenue from its cloud business would hit $166 billion in fiscal 2030—up from just $10 billion in the most recent fiscal year.
The company forecast third-quarter revenue below Wall Street estimates in September, signaling lagging monetization for its highly touted AI agent platform as clients dial back spending due to macroeconomic uncertainty.
Why bother forecasting anything for this decade?
They Do Have the Debt
Predictions of an AI-fueled financial crisis are premature if only because so little of the infrastructure build-out so far has been paid for with debt. So many of the AI infrastructure announcements are aspirational at best. It is a long road to raise money, secure land, construct facilities, get electrons flowing, win customers, and actually light those customers up.
Debt defaults when some of these projects inevitably go wrong (hello private equity, you savvy and sophisticated “operators”!) are still years off. But too many people assume a chart of hyperscaler CAPEX equates to a similar level of debt today. The vast majority of spending to date has been paid for from hyperscaler cash flows.
But the debt picture is changing and some companies are breaking out from the pack as distinguished debtors, in particular CoreWeave, Oracle, xAI, and Meta.
CoreWeave is the biggest of the neoclouds (see Terms of Art below), has raised a lot of debt ($25B+), and is basically a $70 billion bet on a single parameter: what is the useful life of NVIDIA GPUs? Debt/equity ratio: 3.81
Oracle had a high debt load even before they announced their RPO explosion, without any plan to pay for the infrastructure required to book that revenue. It is unclear how much of the latest discussed debt will go on Oracle’s balance sheet as opposed to other owners of the facilities. If Oracle manages to persuade others to take on the debt to build data centers and power generation for them, it will be a further hit to Oracle’s margins. Owners and operators of those facilities need to service all that debt and will charge Oracle accordingly. Debt/equity ratio: 4.621.
xAI is not public, so visibility into their finances is limited. The Information has a good look at xAI’s financial engineering and rocketing debt load. Elon, historically a great raiser of equity, has already been shunted onto the debt track. xAI seems extremely precarious as their path to revenue to repay the debt is the least clear of any of our distinguished debtors.
Meta is using debt and a complex financial vehicle for their Hyperion data center. Meta may be the runt of the hyperclouds, but they still have cash flow to pay for their AI mulligan (at least for now). Debt/equity ratio: 0.25.
We will continue to monitor the situation!
Terms of Art: The Shitcloud
Enter Dark Benioff
Shades of Salesforce’s also-not-a-real-software-company forebear and role model Siebel Systems who made a CRM for terror tracking pitch after 9/11. Got to jump on those trends! Especially the stock pumping trends! (see 2030 revenue forecasting above, doing an OpenAI deal below).
The most important question is whether Salesforce will add a new masked character to their stable of ridiculous mascots.
Previous:
Dreamforce Evacuation Alert, Salesforce “is not a company in crisis”, You Can’t Spell Metallica Without A and I, Benioff’s Blizzard of Bluster: FOOM Edition, Salesforce is (Still) Not a Technology Company, Salesforce Holds “Developer” Conference, Salesforce is Not a Technology Company: Nor an AI Company, 2025 Will Not be the Year of Agentic AI, The Agentic Abyss of Disillusionment, Salesforce is Not a Technology Company: Nor a Dogfood Company, What’s Bugging Marc Benioff – Continued, Benioff’s Blizzard of Bluster, Salesforce + Indian Mystic + AI = ???, “There’s an art to this kind of horseshit, and Benioff is its Michelangelo”, Bluster, Bombast and Bullshit: Just Another Day at Salesforce, Salesforce’s Shamelessness is Staggering, Salesforce Gonna Salesforce, The Spectacle that is Dreamforce, The Hard Thing About “Hard Pivots”, Thought Leadership (in Mascots), Salesforce Rallies Its Deep Bench of AI Experts (and Cartoon Characters)
Going Nuclear: Amazon’s Deployment Plans
I’m overdue to do an update of the Cloud Reactor Tracker. Lots of announcements (and stock pumping) in this space. But we also have lots of time, as none of these will show up before the 2030s.
For trivia fans: Amazon’s utility partner Energy Northwest is the old Washington Public Power Supply System (aka Whoops!)
Previous:
Cloud Power Up, Introducing the Platformonomics Cloud Reactor Tracker, Going Nuclear: Meta Finally Overcomes the Bees, Going Nuclear: Google Adds Elementl, Going Nuclear: Yay Nuclear Edition, The Moore’s Law of Energy, Meta Goes Nuclear, Navigating Nuclear Obstacles: The Utilities, Navigating Nuclear Obstacles: The Bees, The Nuclear Call to Action, Nuclear: To SMR or Not to SMR?, Nuclear: To PPA or Not to PPA?, Starting to think my nuclear power cheerleading work is done…, Yay Google: Nuclear Edition!, It’s Time to Build: Energy Edition, An Even More Nuclear-Powered Cloud, The Nuclear Power Vibe Shift Continues, Not That Kind of Nuclear Cloud, Better Late Than Never, Power Crunch, Behold the Nuclear Cloud, Nuclear Powered Cloud Data Centers Are Happening, A Nuclear-Powered Cloud, When Nuclear-Powered Data Centers?
Not Available in Europe: Laptop Chargers
In this case, an Apple spokesperson told French website Numerama‘s Nicolas Lellouche that the decision to not include a charger with this particular MacBook Pro was made in anticipation of a European regulation that will require Apple to provide customers with the option to purchase certain devices without a charger in the box, starting in April.
Given Europe’s self-inflicted energy crisis, this actually makes sense.
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Not Available in Europe: Online Political Ads, Not Available in Europe: Apps in ChatGPT, Not Available in Europe: Single-Sided Printing, Not Available in Europe: Data, Not Available in Europe: AirPod Live Translations Edition, Not Available in Europe: Email Archives, Not Available in Europe: A Tech Champion, Not Available in Europe: Meta AI, Not Available in Europe: Spinal Fortitude, Not Available in Europe: Air Conditioning, Not Available in Europe: Working Through the Not Available in Europe Backlog Edition, Not Available in Europe: WhatsApp Edition, Not Available in Europe: ChatGPT Memory Edition, Not Available in Europe: Bird Flies, Not Available in Europe: Open AI Deep Research, Not Available in Europe: A Bubbly Economy, Not Available in Europe: Better Late Than Never Apple Edition, Not Available in Europe: Apple’s Math, Not Available in Europe: This Week’s Edition, Not Available in Europe: Coming Soon to a Continent Near You, Not Available in Europe: Don’t Say You Weren’t Warned (by Meta), Not Available in Europe: A Tipping Point?, Not Available in Europe: Stratechery Edition, Not Available in Europe: Apple Edition, Not Available in Europe: Meta Edition
Already On Their Fifth Republic: Do-Over Edition
Guess the previous prime minister gets to re-play his brief tenure.