Oracle's $300 Billion Gamble: Inside the Secret Deal with OpenAI
- Oracle has committed to a $300 billion cloud computing deal with OpenAI, dubbed "Project Stargate," to build massive data centers consuming 4.5 gigawatts of power.
- The immense cost of the project has pushed Oracle's free cash flow negative for the first time in decades, leading to investor anxiety and a sharp drop in its stock price.
- Larry Ellison, now 81, is personally driving this high-risk strategy, betting that AI will be "bigger than the Industrial Revolution" despite skepticism from rivals like Microsoft.
The origins of one of the largest tech deals in history were surprisingly modest. In the spring of 2024, an executive from OpenAI sent an unsolicited LinkedIn message to sales leaders at Oracle. This simple outreach began a partnership that would eventually become the $300 billion "Stargate" project. OpenAI was in a desperate search for computing power to fuel its AI models after existing chip supplies and data center rentals proved insufficient. Oracle, which was already planning a massive data center complex in West Texas originally intended for Elon Musk's xAI, found itself with the perfect infrastructure blueprint to meet OpenAI's insatiable demand.
The resulting deal is staggering in scale. Oracle has committed to building multiple data center complexes that will consume 4.5 gigawatts of power—enough to light up the entire city of Chicago. These facilities will house millions of GPUs needed to train the next generation of artificial intelligence. The project was publicly unveiled with great fanfare at the White House alongside President Donald Trump and SoftBank leaders, with promises of creating hundreds of thousands of jobs. However, the ambitious timeline is already showing cracks. Initial completion dates for some US sites have reportedly slipped from 2027 to 2028 due to labor and material shortages, although Oracle officially denies any delays.
For Oracle, this gamble has transformed its financial reality. The company’s stock initially surged, adding $250 billion to its market value and briefly making Larry Ellison the world's richest person. However, the sheer cost of this infrastructure build out has pushed Oracle's free cash flow into negative territory for the first time since 1992. Wall Street is becoming increasingly jittery. Recent earnings reports revealed expenses growing faster than expected, causing the stock to drop by a third from its peak. Investors are now buying credit default swaps on Oracle debt, betting against the company in a way that recalls the housing bubble of 2008.
The risks are compounded by the uncertain future of AI profitability. Oracle is betting its financial health on a startup, OpenAI, that is currently losing billions of dollars annually. The "Stargate" contract allows OpenAI to walk away after five years, leaving Oracle potentially stuck with specialized, illiquid assets if the AI boom turns out to be a bubble. Even Microsoft, OpenAI's long time partner, balked at a similar deal due to the immense capital requirements, with CEO Satya Nadella publicly questioning the logic of building dedicated gigawatt scale facilities for a single client.
At the center of this high stakes poker game is 81 year old Larry Ellison. Far from retiring, he has reasserted control over Oracle's spending and strategy, bypassing his co CEOs to manage the company's finances directly. Ellison remains a true believer, declaring AI to be "bigger than the Industrial Revolution". Whether this vision proves to be prescient or reckless will determine not just the fate of Oracle, but potentially the trajectory of the entire tech industry in the coming decade. a