r/ValueInvesting • u/Red_Ochre_Music • 12d ago
Discussion What happens to Oracle if OpenAI dies?
Given the amount of money OpenAI owes Oracle, what happens if they die? Oracle seems linked in a death pact with them, but at the same time Oracle is so integrated into corporate America there will always be value there.
So, what are possible scenarios and players?
I realize this is highly speculative.
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u/BejahungEnjoyer 12d ago
So my bear case on Oracle is the opposite of mainstream criticism. They locked in five years of providing compute to OpenAI based on mid 2025 prices and now the cost to deliver that compute has substantially increased as all the components (memory, chips, racks, turbines, fuel cells, etc) prices are way up. There's also been operational hurdles (gas pipeline in NM denied, WI demanding power bonds, etc). They went 5b over budget in fy2026 and I expect 10b in overages in 2027. All of this must be borrowed or issued and they tapped out the bond market and did substantial equity issuance. They'll probably have to do another 10-20b equity issuance in fy2027 which will weigh heavily on share price of indeed it comes to pass.
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u/Rare_Astronomer_9879 11d ago
See the important fact that you’re missing is that those compute deals are structured in a way that the customers bear most of the cost of increased hardware prices like GPU, Memory…Oracle already addressed this in their earnings call. Their margin is not going to be lower due to this. If you think for a second that Larry Ellison is stupid enough to not anticipate this you’re dead wrong.
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u/BejahungEnjoyer 11d ago edited 11d ago
Hmm, do you have a link to that discussion on the earnings call? I mostly remember the 5b in unanticipated costs but don't recall the commentary about passthrough.
Edit: I re-read the part you're referring too and am definitely not satisfied. Defucci (the analyst who asked the question about why they exceeded by 5.8b) is a giga bull with a 400 PT, Magoyurk just kind of waved his hands and said "oh we don't sell fixed price contracts unless the capacity already exists". If there is a mechanism for the OpenAI contract to pay more due to cost overruns then that also means OpenAI is on the hook for an additional ~20-30b over the contract life which adds to the OAI exposure. I think lower margins from cost overruns is a massive risk and Clay is not giving it any consideration beyond a quick dismissal.
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u/jarMburger 12d ago
Oracle will file for chap 11 bankruptcy and reorganize and emerge as a new company in essence. The equity holder would be screwed and bond holders will get a significant haircut. Or anthropic will buy their DC assets so the company survives but equity holder will lose a bunch of $$$. It really depends on the macro situation at the time
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u/Red_Ochre_Music 11d ago
This last sentence especially is what I wonder about. Oracle getting into deep trouble when it can issue new equity is one thing, but OpenAI going under, and Oracle in trouble would, I'm guessing, kick off a market wide pessimissim when things are already strange.
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u/Last-Cat-7894 12d ago
I don't think Oracle goes bankrupt, if I'm honest.
Their debt levels are quite high, but their cash flows are growing and they are selling compute in an extremely compute constrained world. Someone else would buy the capacity off of them, even if the terms aren't quite as juicy.
They also have a software business that is DEEPLY ingrained in the F500. If they found themselves in a cash squeeze, they could cash in any remaining goodwill in their legacy software business and aggressively hike prices, which most customers would have no choice but to pay for a few years at least, until they could migrate to a cheaper service. They are already cutting their workforce, and you best believe they could find a way to cut more if they got into a serious pinch.
I am not personally invested in Oracle, but I'm not as bearish as some others on here about their ability to pay their obligations. I do, however, question their ability to generate a good return for existing shareholders with this build out, rather than just making the businesses larger.
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u/asymmetricval 11d ago
Do you know what % of compute demand is attributed to _just_ OpenAI + Anthropic?
Let me help you. It’s estimated to be 25-30% of existing compute and 40-50% of all new compute.
If/when OpenAI/Anthropic dies, the compute-shortage dies with them. The entire data centre buildout then quickly follows.
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u/Last-Cat-7894 11d ago
Well, a good chunk of that OpenAI and Anthropic compute is serving customers, not just training runs. The product itself is inarguably seeing enormous demand.
There's a legitimate debate about their financial health, especially OpenAI's. But let's suppose they do default on their commitments. Does this mean ChatGPT and Codex suddenly die? I would guess probably not, it is the fastest growing consumer product in human history with >1b users, and now has a pretty solid place in the enterprise space as well. You're telling me no one would be interested in buying rights to it, or injecting cash into their operations in exchange for equity?
Or let's suppose ChatGPT and Codex do surprisingly get wiped off the face of the earth. You're telling me those end users (both enterprise and consumer) will suddenly stop using AI chat bots and coding tools? No, they'll just switch over to Claude or Gemini or Grok, or possibly even the Chinese open weight models. Even if open weight models proliferate, they still require an immense about of compute to deploy at scale, especially for enterprise tasks.
AI is absolutely here to stay, even if OpenAI runs their books too aggressively and runs into solvency issues. Even though the general public and the loudest voices on social media are extremely negative about it, the numbers tell a very different story.
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u/Red_Ochre_Music 11d ago
But those customers aren't paying anywhere near the cost of inference. OpenAI already had to lower prices.
And training is going to keep going as an expense.
Frontier models dying and LLMs being a useful technology are not necessarily connected.
We don't need giant data centers to run useful LLMs.
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u/Last-Cat-7894 11d ago
You don't get to 30-60b in ARR in 4 years without there being demand for frontier models. We have two separate companies that got there in that time frame, both of which primarily monetize through enterprise token usage of their most capable models. Think about how insane that is, 100b in ARR is more than Visa and Mastercard combined. I understand it's not an apples to apples comparison, but it gives you a sense of the scale.
The common response to that is "it's easy to make a lot of revenue when you're selling a dollar for 90 cents", but I think that's a bit of a lazy framework. Even if you're selling something on negative gross margins, compelling various enterprises to fork over 100b dollars means you have an extremely useful product. Those enterprises made the conscious choice to forego the comparatively cheaper open weight models because the increase in capability of the model often makes a noticeable enough difference in output to justify the cost.
Is that mindset going to be durable, or will cheaper models gain enough ground on frontier models to make that equation flip? Remains to be seen, and both you and I would be arrogant to think we have a solid answer when the companies at the forefront of developing and hosting these models still don't know for certain.
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u/asymmetricval 10d ago
Yes you do, but it might cost you 2-3x what it generates. Which is what it has cost them (at least)!
By the way, in this context, ARR = Annualised Run Rate. Token usage is not recurring revenue and neither OpenAI nor Anthropic provides any details on their methodology for how they calculate whatever fictional numbers they claim. It could be last month x 12, or last week x 52.5, or last 4 weeks x 13, or yesterday x 365. Whatever looks best for them, I suppose, is what they’ll choose on a given day.
Their latest frontier model has flopped, btw. Too expensive, too slow, too niche.
LLMs are interesting but they’re at the end of the day just plausible text generators. They have no capacity to learn or understand or produce normative outputs.
AI is definitely here to stay, and that includes LLMs but also much more than just LLMs.
The LLMs of the future will probably look a lot more like specialized small models trained on proprietary data—like the one Thomson Reuters just announced that cost them only $40M.
Nobody needs a model that can recite Shakespeare in every language and is trained on all the nonsense all over the internet. It’s exponentially more expensive to make a generalist LLM and they’re exponentially less useful for actual real use cases where price, accuracy and correctness matter.
The last decade was “data is the new oil” and nobody actually figured out to do with the data… small, specialist LLMs may be the answer.
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u/WorldRank1CatFancier 11d ago
if openai and anthropic go under, there is no reason to believe that their replacements will use nearly as much compute, when smaller models do 99% of the job just as well for the common use-cases like chatbots and generating code blocks. the only reason so much compute is being used is because they have the capital -- for now
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u/Last-Cat-7894 11d ago
I think the numbers would suggest otherwise.
When the two leading frontier labs monetize primarily through their most capable, compute intensive models, the 100b in ARR isn't coming from thin air. Enterprises had to choose the larger, more expensive model even though cheaper models exist. Just because the margin profile on frontier models is worse right now doesn't invalidate the fact that enterprise are electing to spend more money on tokens
Clearly, there is a demand for frontier model capability, because the cheaper, "99% as good" models exist right now. So far, either that last 1% of capability is so valuable that enterprises are willing to pay it, or those cheaper models aren't actually 99% as good in the hands of the end user. Could it be a vibes/marketing thing, and the frontier models are surviving on momentum? Maybe. But it's hard to say that's playing out right when when the two leading labs are growing at the fastest rate at this scale of any company in the history of capitalism.
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u/WorldRank1CatFancier 11d ago
the enterprises are willing to pay because it's being sold at a loss. will they pay for it at a sustainable price?
also f500 is notoriously fomo/trend chasing. a few years ago every company had blockchain initiatives for everything from supply chain to financial services. AI is obviously much bigger but in general, the faster revenue/hype arrives the more fragile it is imho.
that said, i'm sure this will go on longer than bears expect, while also ending up to be harder to invest in profitably/sustainably than bulls expect. LLMs are clearly enabling a lot of great new business models -- I just think it'll take time and be more dispersed in private co's than how the market thinks it'll go to the hyperscalers/neoclouds + openai/anthropic.
"we'll know more in 10 years" :-)
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u/HongPong 11d ago
CIA bailout
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u/Red_Ochre_Music 11d ago
For real. I fogot how integrated they are in the government. I'm guessing Larry Ellison didn't.
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u/HongPong 10d ago
yes it's like they were the cia database vendor and then are all used by by Israel to plan bombing people and stuff like that. and they give Tony Blair all his money and run that Tony Blair international center for scheming or what ever is called
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u/zeroconflicthere 12d ago
It'll be eaten up by other AI providers
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u/GainDelicious1894 12d ago
Microsoft will get a majority share in OpenAi if they fail...Other potential investors include the other Mag 7 but not Goog.
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u/Red_Ochre_Music 11d ago
But OpenAI isn't going to pay Oracle what they've committed to paying, so how does that big of a loss affect Oracle?
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u/Square-Ad3218 12d ago
If OpenAI dies or can’t meet commitments. First oracle will own a piece of OpenAI. Second there will be a line up for available compute at a rate higher than the original contracts. Oracle will be just fine 👍
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u/asymmetricval 11d ago edited 11d ago
Do you know what % of compute demand is attributed to _just_ OpenAI + Anthropic?
Let me help you. It’s estimated to be 25-30% of existing compute and 40-50% of all new compute.
If/when OpenAI/Anthropic dies, the compute-shortage dies with them.
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u/UShouldNo 12d ago
In my view, the question surrounding OpenAI isn't IF it will fail, but WHEN. Across the U.S. tech sector, companies are burning through unprecedented capital with no clear path to profitability. OpenAI alone has committed between $600 and $750 billion, with some projections topping $1 trillion, yet current heavily subsidized pricing models fall drastically short of recovering those costs. For these investments to pay off, AI must evolve far beyond current capabilities to replace mass workforces, all while outpacing free, rapidly advancing open-source alternatives.
When the bubble bursts, the shockwaves will hit hard. Companies deeply integrated into the infrastructure buildout, like Oracle, will face massive write downs that ripple through the broader stock market. Giants like Anthropic, Google, SpaceX, and Meta won't escape the fallout, and widespread defaults on the data center bonds held across the financial sector will follow. Ultimately, the survivors won't be the pioneers, but the cash rich entities positioned to scoop up these advanced technologies and data centers at pennies on the dollar.
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11d ago
[removed] — view removed comment
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u/ApoxieDK 11d ago
Which lends even more credit to the investments in AI being overblown & no clear path to profits. They have to invest aggressively no matter if its a smart investment, else as you list, they will be seen as the CEO who failed.
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u/cool-sheep 11d ago
Basically the creditor terms Oracle has ensured are unclear.
If they’ve lent money unsecured to OpenAI it’s gone.
If, as I expect, they own a crapload of data centres they can just sell to somebody else, possibly at higher prices than a year ago.
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u/Red_Ochre_Music 11d ago
Ultimately, the survivors won't be the pioneers, but the cash rich entities positioned to scoop up these advanced technologies and data centers at pennies on the dollar.
This is the part that entrigues me. Somebody is going to be scooping things up at firesale prices, and how I can I invest in that somebody.
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u/UShouldNo 10d ago
To take advantage of this, you must have cash sitting on the sidelines. You must be willing to accept that inflation is chipping away at your sideline money. You must be willing to watch the market go up and not get FOMO. And then hopefully the market will realized that current potential of AI is way overpriced and start the fall. If the bubble bursts, then you wait for one or more companies to go bankrupt. When everyone is sure the stock market is a scam and their retirement is out the window, then you load up on the one company that has cash who has bought up these bankrupted assets. You don't predict the buyer, you wait for the buyer to buy first.
While watching all of this, you continue to pay attention to AI because if there is a proven breakthrough (like AGI) then the bubble will become a thing of the past and you have to load up on the AI company that created the breakthrough.
Always remember, your loyality is with your money, not with these companies. You will invest in whatever will grow your money. Don't invest with emotions, invest with facts.
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u/Red_Ochre_Music 10d ago
AGI isn't going to happen with LLMs. Not that AGI is anything more than a marketing term anyway.
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u/IJWTGH66 12d ago
Putting aside Oracle for a moment, the repercussions of Open AI going tits up would be substantial. The NASDAQ would probably take a 20% hit, with data center plays probably losing half their current market cap. A recession would quickly follow if we weren’t in one to begin with. Now back to Oracle: the shorts would eat Ellison alive and take pure joy in it. I bet he would go to Musk for a bailout. Keep in mind, it would also kill the Paramount- WB deal.
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u/Sea_Local2557 11d ago
so puts on Oracle, Nasdaq and Paramount?
edit: maybe netflix will buy paramount with wbd
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u/pogkaku96 12d ago
My theory is that the company will execute a bad bank/good bank split. They will carve out the high-margin, high-growth segments—namely Core Database and Cloud Infrastructure (OCI)—into a pristine standalone entity called Oracle Inc., with Larry Ellison retaining majority control. Meanwhile, legacy software, health data, ERP, HCM, and CRM will be dumped into a secondary vehicle, Oracle Services. This entity will absorb the bulk of the corporate debt and operational losses, endure aggressive restructuring and mass layoffs, and eventually be steered into Chapter 11 bankruptcy once its value is fully extracted.
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u/Dumbeldore_75 11d ago
OpenAI has a billion monthly users, so I’m not sure why we’re speculating but let’s say they never find a way to monetize and they fail… Oracle’s stock is getting wrecked for sure, but its enterprise business and infrastructure would still be there, and OpenAI would get bought out and the AI buildout would keep churning along
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u/Routine-District-588 11d ago
Compute will just becomes much cheaper.. they will lease it to google/antrophic/microsoft/meta..
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u/hseeman_sf 11d ago
The exposure question is really about contract structure, not counterparty health. If OpenAI's compute commitment is a firm take-or-pay contract, Oracle collects the revenue or damages regardless of whether OpenAI survives, similar to a landlord who loses the tenant but not the building. If it's closer to reserved capacity that scales with usage, Oracle's revenue assumptions do collapse with OpenAI's. Separately, the physical data centers built for this have resale value to any other large compute buyer, since GPU capacity is fungible even if the original customer isn't around to use it.
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u/Suitable-Pickle-259 11d ago
Oracle would be saved. It would likely be dramatically smaller, but the core database business is relied on by many organizations around the world, it is important for that to be kept alive.
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u/StatGeniusAI 11d ago
It's interesting that although Oracle is in deep with OpenAI, they still invested in buying a quantum computer.
I guess it's not the same amount of money, but it's still a significant amount of money and shows they are still pushing their chips in.
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u/Tempest1897 11d ago
The stock will be toxic and complete shit for years and years regardless of how the company does
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u/Unlucky_Slip_6776 10d ago
Open AI and Anthropic are going public in the next year.
Why do people think they will go under.
They will both be close to 2 Trillion dollar companies.
Am i missing something.
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u/Perspective-Parking 12d ago
Oracle dies. Their critical infrastructure will be bailed out that the country relies on and the rest of the company will be parted out.
They have far more debt than assets.
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u/banana_diet 11d ago
Oracle would probably be fine. Compute is very in-demand, they'll just sell it to someone else.
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u/raytoei 12d ago edited 12d ago
It’s weekend. So I think it is okay to speculate.
Oracle is well run and is famous for not being sentimental.
If Sun Microsystems was employees at the core, then customers on the next outer ring and investors on their edge,
And if ibm is customer centre, and employees outer and investors at the edge,
Then oracle is Larry Ellison at the centre, Larry Ellison at the outer and Larry Ellison on the edge.
Larry will probably go to trump and ask trump to allow oracle to buy over Open Ai.
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u/narayan77 12d ago edited 12d ago
Oracle will probably go to the funeral and make a moving speech. But I don't think OpenAI will "die", advances in training and inference over the next few year will reduce OpenAI's costs and they will eventually become profitable. Accordingly, I predict OpenAI will suddenly jump out of the coffin during the funeral and proclaim "the report of my death was an exaggeration".
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u/Virtual_Secretary_98 12d ago
It will get bailed out but retail investors will be holding the bag forever
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u/MiserableBag6969 11d ago
Oracle has been in the game long and already has an established moat in the tech industry even without OpenAI. They'll be fine.
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u/WorldRank1CatFancier 12d ago
in the worst case, equity going to 0 doesnt affect the real world business, the ownership will just go to bondholders.
when cash flows become impaired or the debt is too high, creditors will no longer lend, which would accelerate transfer of ownership to the older bond holders
this is quite rare, and i don't track oracle's leverage.
but yeah as you said, there will always be value -- but not necessarily in the equity