Oracle’s OpenAI bromance with Sam Altman has now gutted its shares and CDS!

Oracle’s Q2 earnings vindicated my call to stay short Microsoft and SoftBank as public market proxies for OpenAI, whose $500 billion valuation should realistically be marked down by 50% to reflect current ground realities which will get much worse. I was aghast to see Oracle slump by another 11% on Nasdaq but not at all surprised when Microsoft shed $18 in last night’s session/after market. It was a massacre for SoftBank shares in Tokyo as they plunged by almost 10%, exactly as I had predicted they would in my OpenAI post earlier in the week.

The lesson of Larry Ellison’s ill fated bromance with Sam Altman? Those who jump in the sea to save a drowning CEO often drown in the same hubris themselves. Code Red time for Samurai Larry now that he no longer even has my brilliant Wharton classmate Safra Catz by his side to navigate the sinking ship that is ORCL.

The Q2 metrics at Oracle were more Gofawful than even I had imagined. A $10 billion spike in the cash burn rate in only 3-months? A tsunami of capex spending and no parachute to hedge a fatal hard landing risk if OpenAI cannot meet its revenue commitments, which it definitely will not. Oracle has now vapourized $350 billion in shareholder value in its OpenAI fantasy deal since September, which only proves the truth of the old adage in the movie White Mischief about Lord Erroll’s cuckolded elderly nemesis in Happy Valley (Kenya) – there is no bigger fool than an old fool.

The scramble to build mega data centers have broken the bank at Oracle and could wreck havoc on Gulf countries who have made trillion dollar capex commitments at a bubble valuation peak. This will not be the first time that SoftBank will haemorrhage tens of billions in GCC petrodollar wealth on Masa-san’s absurd deal making sprees even though he does not chew paan himself. Remember the fate of the doomed $100 billion SoftBank Vision Fund, 60% of whose capital was raised in Riyadh and Abu Dhabi?

Oracle is taking a colossal risk on the 10-year property leases its mega data centers create if OpenAI cannot pony up the bacon. Its balance sheet is nowhere as big or as pristine as that of MSFT, AMZN, GOOGL or even META. Its net-debt is now $105 billion and its credit default swaps have spiked higher to give the world an SOS that something is truly rotten in the kingdom that Samurai Larry built on databases/enterprise software over the last 50 years. Another $50 billion in debt will trigger a short selling spasm that could take down ORCL to 150 and even force Larry to contact his buddy President Trump for a Intel type Uncle Sam bailout. Never say never in the Age of Trump 2.0.

It is only a matter of time now before Oracle loses its investment grade rating and its paper becomes literal junk in the corporate bond market. Sam Altman has lost his Merlin the Magician aura as the ultimate AI wizard and can no way generate the hundreds of billions in contracted revenue ORCL desperately needs to service its colossal debt/property leases. Brace for contagion in Big Tech credit markets. This vicious cycle has created fabulous long/short opportunities for fund managers sane enough to withstand the seductive kiss of the AI lady djinn. This means long GOOGL, short Satya, Masa-san and ORCL is the AI trade par excellence for now.

We are seeing a carnival of madness in the AI hunger games that will trigger the most brutal wealth destruction spree Silicon Valley and the world has ever seen. That much, at least, is certain!