Hyperscaler AI spending could slow down if Oracle shows ‘discipline’

CNBC’s Jim Cramer suggested this action on Tuesday Seer OpenAI may slow down other hyperscalers’ massive AI spending, saying its partner needs to show “discipline”.

“Oracle already has a large amount of debt. Their balance sheet is not that good. At some point they will heed the bond market’s warning and slow things down,” he said. “These data centers cost a fortune, and even the best builders stumble… Oracle can’t risk Sam Altman blowing up its balance sheet. That’s when and how we get out of this quagmire.”

Cramer named the five technology giants making major artificial intelligence expenditures as follows: Amazon, Microsoft, Google, Meta and in partnership with OpenAI Seer. Cramer said that these names are trying to outspend each other by building data centers as much as they can. He added that they are also trying to prevent competitors from encroaching on their core business.

Cramer said this “careless, ill-advised data center spending” caused the valuations of these stocks to plummet. He suggested that OpenAI was “funded by venture capitalists and the company seems willing to spend itself to death.” As long as the ChatGPT maker keeps spending, other companies will try to keep up, Cramer said. OpenAI has committed to spending more than $300 billion over five years on Oracle’s technology, and its commitments to other companies total close to $1.4 trillion.

But Cramer said Oracle’s $18 billion bond issue sparked scrutiny on Wall Street as many investors aggressively bought credit default swaps (insurance paid if a company can’t meet its obligations). If Oracle increases spending cuts, rivals could follow suit and see their shares rise, Cramer said.

“This way Oracle survives and OpenAI has to choose which businesses it really wants to target,” he said. “Because he who defends everything defends nothing.”

Oracle and OpenAI did not immediately respond to a request for comment.

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Disclaimer CNBC Investing Club Charitable Trust owns shares of Amazon, Microsoft and Meta.