TL;DR

OpenAI’s $300 billion deal with Oracle is a massive, unsustainable bet on future earnings, reminiscent of past financial bubbles. Investors, blinded by hype, risk significant losses.

Story

John, a retiree dreaming of a comfortable sunset, saw an ad promising incredible returns. It wasn’t some fly-by-night operation; it was OpenAI, partnering with Oracle, a tech giant, for a "groundbreaking" cloud computing deal. The deal? A staggering $300 billion over five years. Sounds too good to be true, right? It is.

How did it happen? OpenAI, known for its cash-burning AI models, secured this gargantuan loan from Oracle. It’s like building a house of cards: each layer depends on the one below. This deal assumes OpenAI will somehow generate enough revenue to pay back Oracle. But their current revenue is a fraction of the annual payments—$12.5 billion versus $60 billion annually. Where’s the money coming from? Nowhere, likely.

The human impact? Oracle’s stock soared initially, fueled by hype, not substance. Investors, captivated by the sheer size of the deal, ignored the glaring red flags. But what about John? He’d be one of many who invested based on the false promise of OpenAI’s future success, ignoring the unsustainable nature of this deal. We’ve seen this movie before - the dot-com bubble, the subprime mortgage crisis, Enron. Speculation replaces substance, and the house of cards collapses.

What are the lessons? First, always check the math—especially for deals that seem too good to be true. Then, be wary of deals that are based solely on projected, not proven, revenue. And, most critically, understand how the money is actually going to be made back. This entire deal relies on an assumption of future growth that may not happen.

Conclusion: The OpenAI-Oracle deal serves as a cautionary tale. It showcases how hype and the allure of ‘disruptive technology’ can overshadow critical financial analysis. Remember Enron? Remember the 2008 financial crisis? This is just another chapter in the ongoing saga of unrealistic promises and investors’ insatiable appetite for quick riches. This isn’t innovation; it’s a high-stakes gamble built on sand. ‣ Cloud Computing: Using remote servers to store and process data.

Advice

Don’t chase hype. Always scrutinize the financials of any investment—no matter how impressive the marketing. If it sounds too good to be true, it probably is.

Source

https://www.reddit.com/r/stocks/comments/1ndnys2/oracle_openai_sign_massive_300_billion_cloud/