Hyperscalers’ AI spending could slow if Oracle shows ‘discipline’

CNBC’s Jim Cramer on Tuesday proposed action from the government. oracle He said OpenAI partners should show “discipline”, saying it could slow down other hyperscalers’ big investments in artificial intelligence.

“Oracle already has a lot of debt. Their balance sheet is not very good. At some point, they will listen to the bond market warnings and slow things down,” he said. “These data centers cost so much money that even the best builders stumble…Oracle can’t risk blowing up its balance sheet because of Sam Altman. When and how is it going to get out of this quagmire?”

Kramer named five large technology companies that are investing heavily in AI. Amazon, microsoft, google, meta In partnership with OpenAI oracle. Kramer said these companies are trying to outspend each other and build as many data centers as possible. He also added that the company is trying to prevent rivals from encroaching on its core business.

Cramer said this “reckless and imprudent data center spending” caused the valuations of these stocks to plummet. He suggested that OpenAI is “funded by venture capitalists, and it looks like the company is going to spend money until it dies.” As long as ChatGPT makers keep spending, other companies will catch up, Cramer continued. OpenAI has committed to spending more than $300 billion over five years on Oracle’s technology, with many commitments to other companies totaling nearly $1.4 trillion.

But Oracle’s $18 billion bond issue drew scrutiny across Wall Street because many investors aggressively bought credit default swaps, insurance that pays out if a company defaults, Cramer said. If Oracle cuts spending, its competitors could follow suit and boost its stock price, Cramer said.

“This will keep Oracle alive and force OpenAI to choose which businesses it really wants to target,” he said. “For he who protects everything protects nothing.”

Oracle and OpenAI did not respond to requests for comment.

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Disclaimer CNBC Investing Club Charitable Trust owns stock in Amazon, Microsoft, and Meta.