r/investing
Oracle Corp. invested US$55.7 billion in capital expenditures over the past year to accelerate the expansion of its AI infrastructure business, exceeding its earlier projection of US$50 billion.
Oracle's AI infrastructure revenue surged 93% YoY to $5.8B, driven by $55.7B capex and data center buildout for OpenAI.
- AI infrastructure revenue grew 93% YoY to $5.8B, beating analyst expectations.
- Massive $55.7B capex demonstrates strong commitment to capturing AI workload demand from major clients like OpenAI.
- Heavy reliance on debt and equity financing ($50B) to fund massive capital needs could dilute shareholders or increase leverage.
Quarterly capex totaled US$15.9 billion in the period ended May 31, highlighting the company's massive data center buildout to meet growing demand from OpenAI and other customers developing artificial intelligence applications.
The company, long known for its database software, has increasingly repositioned itself as a provider of computing capacity for AI workloads. Oracle also announced plans to raise US$50 billion through debt and equity financing this year to support its capital needs.
Oracle's closely watched infrastructure segment posted revenue growth of 93% year-over-year to US$5.8 billion, slightly ahead of analysts' expectations for 91% growth.
This headlong AI capex expenditure from all these companies is going to be such a giant debacle, it will make the $80B wasted on the Metaverse look smart.
I see it like a real estate problem. With all the data centers spinning up there will be amble opportunities to store your processing rigs. The data centers will make money until the companies providing the rigs realize how expensive it is to replace this infrastructure every 5-7 years to keep up with new processing power.
It's like trying to profit off real estate but your house needs a full new replacement every 5-7 instead of 30. Makes the %vacancy rate you can afford for renters to get ROI much higher and for the companies providing the equipment it means they have to get an incredible return for their investment over and over and over again - which as AI and hardware improve - it will hopefully scale back the needed processing power and footprint meaning inevitably - lots of empty rack space and datacenters will be shuttering in 10-20 years.
When these megalith companies have a large portion of their balance sheet acting more like real estate - their valuations and prices will start to fluctuate more like real estate minus the market rate sensitivity.
This is… an overly simplistic way to look at tech and capex.
How so? Hardware performance greatly increases over time as technology improves and a task can only be solved "so well" to the point that there will be processing overkill for AI eventually. We have gigabit internet speeds, some people pay the premium, but most people are happy with whatever 200-500 up/down they can get and most don't notice the difference. The same will happen with these massive server farms being allocated. If you only need 80% of the footprint you needed with the last hardware upgrade and that trend continues across customers, eventually there will be a surplus of datacenter space to rent or surplus of hosts to rent - this will drive costs down and drive down profit margins.
It's not terribly different from web hosting. It used to be a massively profitable business. Then performance improved, costs lowered, competition increased and now web hosting costs a song. The same thing, while not at quite the scale of web hosting, I anticipate will occur over that 10-20 year time horizon.
As far as capex - I understand IT capex very well, I work in the space. There is forced obsolescence everywhere.
Revenues of $5b for quarterly $15b Cap ex and we don't even know what the operating costs were on the $5b of revenue?
Math ain't mathing here
yeah the ratio is wild. they're betting hard that the OpenAI/TikTok contracts actually materialize into real recurring revenue. if those backlog numbers don't convert, this
Bullish for MU on this. Every single one of those data centers Oracle is aggressively building out for OpenAI and other LLM clients requires cutting-edge AI clusters (like Nvidia's Blackwell architecture). Those chips cannot function without High-Bandwidth Memory (HBM).