TheChek News Flow

And suddenly, there may be a reverse Midas at the centre of AI’s circular economy

It’s too soon to be talking about the Curse of OpenAI, but we’re going to anyway.

Since September 10, when Oracle announced a $300bn deal with the chatbot maker, its stock has shed $374bn in market value:

OK, yes, market caps don’t work like that and the post headline is clickbait. But equivalents to Oracle shares are little changed over the same period (Nasdaq Composite, Microsoft, Dow Jones US Software Index), so neither is it entirely wrong. Oracle’s “astonishing quarter” really has cost it as much as one Dell, or two eBays.

Investor unease stems from Big Red betting a debt-financed data farm on OpenAI, as MainFT reported last week. We’ve nothing much to add to that report other than the below charts showing how much Oracle has, in effect, become OpenAI’s US public market proxy:

The theory goes that OpenAI is in a rush to define discover AGI, and Oracle is uniquely able to scale the compute capacity it needs. Oracle promises the lowest upfront costs and fastest path to income generation among the hyperscalers because it’s a data centre tenant rather than the landlord.

Alternatively, Oracle doesn’t have as much operating profit to burn as its competitors, so is throwing everything it can at supporting its one big customer in exchange for an IOU:

At an analyst day last month in Las Vegas, Oracle said it was aiming for cloud computing revenue of $166bn by 2030:

To get there, Oracle’s capex budget for the current financial year ending May is $35bn. The consensus has annual capex levelling out at around $80bn a year in 2029, after which revenues continue to ramp:

And from 2027, the majority of revenue would be coming from OpenAI:

But Oracle’s net debt is already at 2.5 times ebitda, having more than doubled since 2021, and it’s expected to nearly double again by 2030. Cash flow is forecast to remain negative for five straight years:

So while the OpenAI agreement has been more than written off the equity, the risk of unfunded expansion remains and the cost of hedging Oracle debt is at a three-year high.

We need to add the usual warnings: Credit-default-swap liquidity isn’t great; the increased demand for Oracle CDS comes after $18bn of bond sales in September; a CDS premium in the low 100 basis points isn’t that exciting; and some firms taking the other side of the trade are no mugs. Still, pointy.

Beyond the charts, a broader question relates to whether an OpenAI deal is still worth announcing.

A few months ago, any kind of agreement with OpenAI could make a share price go up. OpenAI did very nicely out of its power to reflect glory, most notably in October when it took AMD warrants as part of a chip deal that bumped share price by 24 per cent.

But Oracle is not the only laggard. Broadcom and Amazon are both down following OpenAI deal news, while Nvidia’s barely changed since its investment agreement in September. Without a share price lift, what’s the point? A combined trillion dollars of AI capex might look like commitment, but investment fashions are fickle.

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A passenger train was forced to make an emergency stop after damage was spotted on tracks

Polish Prime Minister Donald Tusk described a rail network explosion near the Ukraine border as an “unprecedented act of sabotage.”

A passenger train was forced to stop after track damage, with additional damage found elsewhere on the crucial aid route to Ukraine.

The incident follows a series of suspected Russian drone disruptions across central and Eastern Europe.

WARSAW—Polish Prime Minister Donald Tusk described an explosion on the country’s rail network near the Ukraine border as an “unprecedented act of sabotage,” casting it among a string of suspected attacks targeting European infrastructure in recent months.

A passenger train traveling between Warsaw and the eastern city of Lublin was forced to make an emergency stop early Sunday after damage was spotted on the tracks. The route is a crucial part of the network for delivering aid to Ukraine.

“Blowing up the rail track on the Warsaw-Lublin route is an unprecedented act of sabotage targeting directly the security of the Polish state and its civilians,” Tusk said in a social-media post Monday.

The goal of the sabotage was to blow up the train, Tusk said, adding that additional damage had been identified elsewhere on the route. “We will catch the perpetrators, regardless of who their backers are,” he added. The incident occurred near the village of Mika, roughly 62 miles south of the capital.

In a separate incident further down the track, a train carrying 475 passengers was forced to stop Sunday evening after damage to an overhead line shattered the windows in one of the carriages, according to local authorities. There was a heavy police presence on the line Monday as officers conducted inspections.

The suspected attack comes at a time of heightened tensions in the region. In recent weeks, a series of suspected Russian drones has disrupted airports, grounded flights and put citizens on edge across Central and Eastern Europe, thrusting some countries into a gray-zone conflict with Moscow.

In September, NATO-member warplanes shot down several Russian drones over Poland, the first time the alliance has engaged Russian drones over a member’s territory after what officials contend was a test of its defenses by Moscow.

Sabotage, cyberattacks and disinformation campaigns have allowed Russia to assert itself in the region without directly entering a war with members of the North Atlantic Treaty Organization.

The Kremlin has repeatedly denied any involvement in acts of sabotage or drone incursions in Europe.

While disruption from drones has become a regular occurrence, a physical attack on Poland’s critical infrastructure would mark a serious escalation.

Early on in the war in Ukraine, Poland’s security agency detained Russian agents installing cameras along Poland’s rail lines and the critical cargo of weapons they carried into Ukraine. Many arms cargoes were struck once they crossed the border.

Gen. Wiesław Kukuła, chief of the general staff of the Polish Army, called the sabotage an act of aggression. “The enemy is preparing for war, setting the conditions for an act of aggression on Poland,” Kukuła said Monday on the country’s state-run radio station.