OpenAI and Oracle Strike $300 Billion Deal for Project Stargate

OpenAI has reportedly agreed to a massive $300 billion deal with Oracle aimed at securing computational resources for the ambitious Project Stargate. The financial details surrounding the funding of this project remain unclear, raising questions about how the substantial costs will be covered.

While former President Donald Trump publicly announced Project Stargate, the development of the artificial intelligence infrastructure in Texas had already commenced. However, the source of the $500 billion projected cost was a topic of speculation. The newly revealed agreement with Oracle appears to clarify part of the funding landscape.

According to sources, the deal does not involve direct investment in the construction of the infrastructure; instead, it focuses on the procurement of computing power over a five-year period. Reports suggest that OpenAI will be required to pay approximately $60 billion annually to Oracle as part of the agreement.

The collaboration between the two firms includes plans to construct a data center capable of delivering 4.5 gigawatts of power--a capacity sufficient to supply energy to about four million households. Although this data center is a significant component of the partnership, it remains uncertain how it fits into the broader Project Stargate initiative, which also includes participation from other stakeholders such as Japan's Softbank, Nvidia, and the investment fund MGX of the Emirati ruling family.

The contract between OpenAI and Oracle is set to take effect in 2027, but questions linger regarding OpenAI's ability to generate the necessary funds. Analysts project that OpenAI may achieve a revenue of $12.7 billion this year. Additionally, the company has secured a separate $10 billion deal with Broadcom, a firm specializing in custom chip manufacturing, which is also a supplier for companies like Google and Meta.

OpenAI's liquidity needs have reportedly soared to $115 billion by 2029, surpassing previous estimates by $80 billion. This year alone, the projected liquidity consumption is expected to exceed $8 billion, which is $1.5 billion more than earlier forecasts. Liquidity consumption, often referred to as cash burn, indicates how much available cash a company requires before reaching profitability.

During Oracle's quarterly earnings announcement, CEO Safra Catz mentioned additional multi-billion dollar contracts contributing to an impressive 77% increase in revenue, amounting to over $317 billion from future contract earnings. This surge in revenue has reportedly positioned Oracle founder Larry Ellison among the wealthiest individuals globally. However, the uncertainties associated with the OpenAI deal complicate Oracle's position, as the company must invest upfront in chip production, banking on OpenAI's ability to fulfill its payment obligations.