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Earlier this month, Larry Ellison briefly became the richest man in the world after his company Oracle delivered worse than expected financial results. As a clear sign of a very healthy and totally normal market, the tech company reported lower earnings per share and revenue than it projected. But despite this, its value soared by over 30% in a single day, gaining more market cap than the entirety of McDonald's within 8 hours. This is all from a company that has historically provided boring software subscriptions to boring enterprise customers. And if an industry reputation is to be believed, they didn't even do that particularly well.
So, as you might have already guessed, this recent boom has had a lot to do with big promises about the future of AI, which is nothing that special by itself anymore. But the way that Oracle is capitalizing on this hype is unique, and it's also worth understanding because unfortunately, it will impact you. Oracle is going to be effectively taking over control of Tik Tok in America. It has massive influence in both Silicon Valley and Washington. It might single-handedly be keeping the AI bubble inflated. Oh, and this is not to mention the direct connection it will have with potentially the biggest traditional media company of all time. It's all very impressive stuff when you remember that unless you were unlucky enough to have to deal with their software services, most people have no idea what the [ __ ] this business actually does.
Larry Ellison, founder and top shareholder of software giant Oracle, has seen his net worth by $70 billion in one day. According to the White House, the deal would transfer control of Tik Tok's US operations and a copy of that all important algorithm. Oracle, founded by Ellison in cooperation with the government, monitors this algorithm. Larry Ellison, he's an amazing man, an amazing business person. According to the Wall Street Journal, who's reporting Paramount Sky Dance is preparing a majority cash bid for Warner Brothers Discovery. The move would see the two titans of the entertainment industry come together.
Okay, so there are really three things you need to understand about this company. The financial shenanigans it has pulled to suddenly explode in value, the way it's using that paper value to grab real value, and how it's using that value to become one of the most powerful institutions in the world. I know organizations like Black Rockck usually get all of the attention for pulling strings behind the scenes. And honestly, some of these fears are not totally unwarranted, but hold on to your tinfoil hats. Because there is an argument to be made that what Oracle is turning into is going to be much worse. And here's why.
The recent run up in Oracle stock price has been largely thanks to its aggressive shift into AI infrastructure support. The company is building massive AI data centers and then selling access to them to companies that don't have the money or expertise to build their own. Now cloud computing is not a new offering from Oracle and a lot of other companies offer similar products, but the rate at which they are expanding this part of their business supposedly is what has surprised a lot of investors. As far as tech companies go, Oracle is pretty ancient at almost 50 years old now. Investors were treating it like a mature, stable, lowgrowth industry incumbent that had carved out a nice little niche for itself in commercial software services. But over the last year, it has effectively rebranded itself in the markets as a born-again AI startup, complete with the investor exuberance that comes with it.
This really came to a head in their most recent earnings when they announced that they had almost half a trillion dollars in backlogged orders from AI companies desperate to utilize its expanding infrastructure. It's basically that number alone that has fueled the surge in Oracle stock price because everything else in the financials were underwhelming at best. But that didn't matter because big numbers go up and people are hoping this could be the next Nvidia for everybody who missed out on Nvidia. But there are three big problems with that absolutely massive number. The first is the simple fact that we need to get out of the way first, which is that this spending is probably almost certainly unsustainable. Generative AI does have some useful applications and in the long run we are going to figure out more ways to integrate it into everyday technologies but $455 billion is more than 2% of US GDP and that's in just one set of contracts from one company. When you are spending that much money handy little technologies are not good enough. It genuinely needs to radically reshape the world in one way or another. Even if it's not for the best at least the analysts will be able to see where the money is going. The big players are getting more and more desperate to prove that the scale of disruption is possible while everybody else is getting more and more skeptical. This was covered in a video last month. So, I don't want to retread too much ground here because the economy destabilizing scale of AI investments is not even the biggest problem with these oracle numbers.
The bigger problem is that later on in that same financial letter, the CEO notes that basically all of this money is coming from just four contracts with three individual clients. So even if those contracts were split evenly, that means these clients will be spending more than $150 billion each on effectively renting a data center, the logical question is why would companies with that much money not just build their own data centers? Well, that's the third problem. The biggest new client juicing these numbers is Open AAI, who has announced plans to spend over $300 billion with Oracle over the next 5 years. The problem is OpenAI doesn't have $300 billion to even have a chance of being able to fulfill this commitment. They are going to need a lot more investor money. Fortunately, and completely coincidentally, at around the same time last week, Nvidia announced that it will be investing hundred billion into OpenAI. This cash will be used to help develop their computer infrastructure through deals like the one they have made with Oracle. But Oracle is building its computing billions of dollars worth of Nvidia GPUs. So uh yeah, all they are doing is effectively turning outside investor money into deferred revenue on the next company over which is making these businesses look more promising than they really are to even more outside investors.
Now AI has been playing a game of say a bigger number for a while now to the point where last week Sam Altman unironically suggested that we could build a Dyson sphere to power core compute capabilities. Now, this is all really dumb, but it should only be a risk to the people investing money into these businesses, and they do need to do their own due diligence. The real problem for everybody else is what they are doing with these fantasy valuations once they have achieved them. So, it's time to learn how money works to find out what Oracle and the big man Larry Ellison are really up to.
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Oracle and its founder, Larry Ellison, have been extremely wealthy for a very long time now, and over the last four decades, neither of them have been afraid of throwing their money around a bit. Oracle spends millions of dollars every year on political donations and lobbying. And Ellison himself was one of the biggest spenders on last year's election, even if he was a little bit more low-key about it than Elon Musk. Senior executives in the company, including its outgoing CEO, have also held key positions within the current government. But like all good philanthropy, the alleged return on investment from these donations has been staggering.
On a totally unrelated note, Tik Tok's parent company Bite Dance must sell off its US operations in a deal that has been heavily monitored by the government because of the sensitive user information and influence the platform controls. To facilitate this transfer, Oracle has been selected and approved as the company that will handle the new platform using its existing cloud infrastructure. This is going to give it influence over the algorithm and access to that same sensitive user data. Now, you might reasonably say that it's better for an American tech giant to have this data when the alternative is a Chinese tech giant, and that's completely fair. What hasn't been completely fair is the tender process to decide which particular tech giant would be gifted this valuable opportunity. The details of this acquisition are still incredibly vague and opaque, but almost every independent estimate says that the 14 billion valuation put on the social media platform is well below what it should trade at. Now only the American operation is being forced to sell here. But even still, comparing it to a competitor like Instagram based on sales within this market alone, it should conservatively be worth 10 times more.
Now, political lobbying potentially and totally coincidentally resulting in a lucrative government deal might not come as a huge surprise to you anymore. But well, say the line, Bart, it gets worse. The Ellison family have used their wealth and influence to move far beyond one single tech company. Now, I have to give a warning that this next part involves looking at the world's most punchable face. Although nothing I can say can truly prepare you. Larry Ellison's son, David Ellison, started the company Sky Dance Media in 2010, reportedly with seed capital of $350 million coming from his father and other associates. Last year, Sky Dance took over Paramount to form Paramount Sky Dance, which Ellison still has voting control over. This new mega media company is also reportedly eyeing a deal to acquire Warner Brothers, which would make it one of, if not the largest traditional media conglomerate in history. This is incredibly impressive from a business started just 15 years ago. Although funding from one of the richest men in the world has certainly made rapid expansion a lot easier, but the cozy and at times lucrative relationship with the government has raised some eyebrows around how this business is run, such as the cancellation of Steven Coar. at the same time that the Tik Tok deal and the current slate of big acquisitions were being assessed. However, the company insists that it was purely down to the show receiving poor ratings. Now, that may very well be true. Late night talk shows have been a slowly fading medium for a long time now. However, even the potential for an organization with this much influence to have this much control is concerning enough by itself.
But it gets worse. As something of a synergistic move with Oracle's heavy focus on AI, David has been a vocal supporter of using the technology to lower costs in the movie production industry. So basically the worst use case for AI. This is also all ignoring the biggest problem of all. Larry Ellison is 81 years old and while he looks pretty good for his age, he is eventually going to die. The exact details of his estate are unknown, but it's safe to assume that he will pass down at least some of his influence over Oracle to his son. That means one man could soon potentially control one of the biggest social media platforms and traditional media platforms at the same time. So if you ever wondered what happened if we mixed Rupert Murdoch with Mark Zuckerberg, we may be about to find out. Compared to the other big companies, Sky Dance and Oracle are far more low-key to the average person when compared to competitors like Disney or Facebook. But I hope in whatever way it can, this video shines a little bit more light on them because they could soon be just as important.
Now, of course, this is only one part of a bigger trend that is getting a lot less attention than it really should. Go and watch this video next to find out why businesses are slowly going extinct. And don't forget to like and subscribe to keep on learning how money works.