In a striking commentary on the current landscape of artificial intelligence (AI) spending, renowned financial analyst Jimmy Cramer highlighted that Oracle could play a pivotal role in curbing the aggressive capital expenditure of hyperscaler companies. Cramer emphasized Oracle”s partnership with OpenAI as a significant factor that could influence the pace of AI development across the sector.
Cramer expressed concerns regarding Oracle”s financial health, noting that the company carries substantial debt. He warned that the bond market”s response to Oracle”s financial maneuvers could eventually compel the company to temper its spending habits. “Oracle already has a huge amount of debt. Their balance sheet”s not that good. At some point, they”ll heed the warning of the bond market and slow things down,” he stated.
Moreover, Cramer pointed out that the ongoing race to build data centers has become an expensive endeavor, with even the most robust operators feeling the strain. He cautioned that “Oracle can”t risk blowing up its balance sheet for Sam Altman,” referring to the head of OpenAI, and suggested that a slowdown in spending could provide a necessary reprieve for the entire sector.
According to Cramer, major players in the data center race, including Amazon, Microsoft, Google, Meta, and OpenAI, are engaged in a competitive battle to outspend one another by establishing data centers in numerous locations. He characterized this behavior as reckless and noted that such imprudent spending has adversely affected valuations across the sector.
Cramer also raised alarm over the scale of financial commitments made by OpenAI, which has reportedly allocated more than $300 billion over a five-year period towards Oracle”s technology, with total promises across the market nearing $1.4 trillion. This expansive spending raises concerns about the fragility of the entire sector.
The analyst mentioned Oracle”s recent $18 billion bond sale, which was met with a swift response as traders flocked to credit default swaps, indicating a heightened sense of risk regarding Oracle”s financial stability should the current spending pace continue.
Cramer believes that if Oracle scales back its expenditures, it may prompt its competitors to do the same, potentially leading to a recovery in their stock valuations. He succinctly summarized this idea, stating, “This way Oracle stays alive, and OpenAI is forced to choose which businesses it truly wants to target. Because he who defends everything defends nothing.”
In a broader context, Cramer noted a significant shift in market sentiment, indicating that institutional investors have moved away from high-risk tech stocks towards more stable growth sectors. He described this shift as a vital development that has contributed to the resilience observed in various industries beyond technology.
Cramer asserted that fears of a new data center bubble are misplaced, as the hype surrounding such investments has already diminished. He pointed out that investors have diversified into sectors like aerospace, retail, and fintech, which he labeled as the “salvation of this market.” In contrast to the dotcom crash of the early 2000s, he highlighted that the current market environment benefits from a greater availability of capital.
Ultimately, Cramer portrayed the current situation as a transition period, coining it “2025,” where a more orderly return to sustainable growth is expected. He emphasized that this growth will likely occur in industries that benefit from AI rather than being solely driven by it.
