Stargate & AI – Magic Money Tree pt. III

A project for which hardly anyone has the money.

• Stargate is an ambitious project to build up to $500bn of AI Cloud capacity but does not take into account the fact none of the current players except SoftBank and MGX have the money to complete even the first, $100bn phase.
• Stargate is a joint venture formed between OpenAI, SoftBank and Oracle that intends to build a series of data centres as well as the supporting infrastructure to enable the anticipated mass adoption of AI.
• The initial phase is $100bn and it seems that OpenAI and SoftBank will each put in $19bn with Oracle and MGX putting in $7bn each.
• This leaves $48bn left to find for the first phase but given the glitz and sparkle that is being attached to this venture, I suspect the rest will be forthcoming without too much difficulty.
• The best way to think of Stargate is as a private equity fund with OpenAI and SoftBank as the main partners which will invest in projects that build and operate AI infrastructure.
• The remit is wider than just data centres and I suspect that there will also be money for investing in electricity generation which is rapidly becoming a key bottleneck for AI.
• Arm, Nvidia and Microsoft are also involved as technology providers but there is no doubt that this signals the end of OpenAI’s exclusive relationship with Microsoft.
• Oracle’s involvement makes it very clear that OpenAI will be running on Oracle infrastructure in some of the financed projects in a sign that Microsoft has had enough of coughing up vast amounts of cash for OpenAI.
• Microsoft also made a statement relating to this project where it confirmed its continued partnership but also stated that its relationship with OpenAI had moved from an exclusive partnership to one where it has the right of first refusal (see here).
• Consequently, I suspect it was asked if it wanted to part with another $20bn+ to which it replied, “No thanks”.
• Microsoft has also added support for Mistral and Anthropic in its data centres, but I think this is more about giving clients choice as I don’t think that its own offering has followed suit.
• The biggest question I have is where the money is going to come from as SoftBank has just $25bn of cash and cash equivalents, OpenAI has less than nothing given that it is burning cash like there is no tomorrow and Oracle has just over $10bn of cash on its balance sheet.
• Where the other $400bn (roughly 3x total hyper scaler 2025 capex) will come from also remains a mystery.
• The other question is demand as CES 2025 clearly demonstrated that generative AI is not ready for the consumer and all of the inference that was supposed to materialise in 2024 failed to do so.
• Furthermore, I think that in the long run, most inference will be conducted at the edge of the network and not in the cloud meaning that most of the built capacity will be for training rather than inference.
• Hence, there is a good chance that there is a correction in expectations and valuations and the $400bn takes far longer to materialise than anyone currently expects.
• In the meantime, this makes great geopolitical theatre cementing the USA’s leadership in AI and putting China and DeepSeek back in their box.
• Hence, I expect to see a lot more talk as well as some initial investments but once reality reasserts itself, Stargate will be a smaller, but probably better and more efficient investor.