{"slug": "if-things-get-really-bad-ellison-can-always-sell-that-island-back-to-hawaii", "title": "If things get really bad, Ellison can always sell that island back to Hawaii", "summary": "Oracle's massive $300 billion cloud compute contract with OpenAI has driven its credit rating to the brink of junk status, with S&P Global downgrading it to BBB/A-2 and warning that OpenAI's financial troubles could leave Oracle with unmanageable data center leases. The company has raised over $50 billion through stock sales and debt to fund the buildout, while its gross margins have fallen nearly 15% since 2022, and a collapse of OpenAI could threaten Larry Ellison's fortune and Oracle's stability.", "body_md": "“.. hard to overstate how critical $ORCL is to the entire AI narrative. No big company has levered itself (figuratively and financially) more .. the stock's horrendous trading performance underscores heightened anxiety about how it can profitably build all the infrastructure ..” - Vital Knowledge\n\n— Carl Quintanilla ([[image or embed]][@carlquintanilla.bsky.social])[July 16, 2026 at 7:59 AM]\n\nPicking up our Paramount/Warners [thread](https://observationalepidemiology.blogspot.com/2026/07/a-not-so-done-deal.html).\n\nEd Zitron has an epic length [post](https://www.wheresyoured.at/the-openai-bubble/#oracle-and-larry-ellison%E2%80%99s-fortune) on the pivotal role and precarious state of OpenAI. Among other things, he points emphatically and in great detail a fact that lots of smart people have been saying quietly, that if that company collapses it is likely to take down one of tech's biggest and most established players* along with one of the world's largest fortunes.\n\nOracle is currently\n\n[, as part of]spending over $340 billion to build out over 7.1GW of data center capacity for OpenAI[that began, at least in theory, on June 1, 2026 at the beginning of its Fiscal Year 2027, though much of the capacity is yet to be built. To fund the buildout,]its $300 billion, five-year-long cloud compute contract[,]Oracle has had to raise over $50 billion via stock sales and debt[, and expects to spend at least $90 billion more in FY2027.]spent $55.7 billion in its last fiscal yearAs a result of\n\nthat, S&P Global[, the literal lowest level before it’ll become junk-grade, meaning that one more downgrade (]downgraded Oracle’s credit rating to BBB/A-2[) from here would risk Oracle becoming a “fallen angel,” with investment funds (that can’t hold junk grade debt) having to jettison its debt from indexes,]though it would have to be from two ratings agencies[, leading to over $35 billion in debt being dumped and]as happened to Ford in March 2020[. For some context,]its borrowing costs skyrocketing to between 8.5% and 9.625% when it raised in April 2020[.]Ford reported an average interest rate of 5.2% on its long term debt in its 2019 annual reportYou’ll never guess why S&P Global downgraded Oracle! And, once again,\n\nthe emphasis is theirs:OpenAI remains a key credit risk.We estimate that OpenAI makes up roughly half of the $638 billion in RPO. OpenAI’s ability to meet its contractual obligations and raise external financing will be contingent upon AI tailwinds continuing and its models being market leaders. If OpenAI were unable to pay Oracle, we believe Oracle could be left with massive data center leases that it might be unable to exit or have to re-lease to new tenants under less-favorable terms. As a proxy for OpenAI’s future prospects, we’re tracking OpenAI’s financial commitments to data center operators and chip makers to gauge its overall financial exposure and its market share among enterprise and consumers.That’s a load-bearing if, brother!\n\n...\n\nAs a reminder, the only way that OpenAI will be able to afford to pay its $300 billion cloud compute contract with Oracle will be if it continues to hit revenue projections (\n\n[) that have it making $113 billion in 2028, $184 billion in 2029, and $284 billion in 2030, a year when it will magically become profitable, and]per The Informationno, I don’t know how that happens:...\n\n[as its other business plateaued, even as it burned billions of dollars on capital expenditures and]Generative AI is the only reason that Wall Street started liking Oracle again[, with the vast majority of that value coming from its revenue from OpenAI and what’s actually active at Stargate Abilene.]cut its gross margins by a little under 15% since 2022...\n\nAs I said in my piece about how OpenAI Kills Oracle:\n\n[The collapse of Stargate and OpenAI would be] a very bad thing for Larry Ellison, who holds around 40% of Oracle’s shares and[as a result,]receives a dividend of around $2.3 billion a year[with]especially as he’s backed the $111 billion Paramount-Warner Brothers Discovery merger deal[with Larry himself guaranteeing the amount,]$45.7 billion of that as an equity commitment from the Ellison Trust (the Ellison family investment arm which holds his Oracle shares)[.]with $24 billion of those funds likely coming from the Middle East\n\nThis leaves the Ellison family with around $12 billion left to fund the deal. Depending on how liquid the trust is, it could foreseeably fund that in cash, but if Ellison is a little light, he might have to take out further margin loans on his Oracle stock.\n\nYes, I used the word “further.” Ellison has already[— or around $61.5 billion — “to secure certain personal indebtedness, including various lines of credit,” meaning “many big, beautiful loans against his Oracle shares.” which IFR estimated back in September (]pledged 346 million shares of his Oracle stock[) could allow him to secure as much as $21.4 billion in debt at a (they say “conservative”) loan-to-value ratio of 20%, and that’s assuming the banks weren’t particularly generous.]when Oracle’s stock price was much higherOne of the consistent themes of this piece is that much of the “value” of AI is hot air — by which I mean whatever people are willing to pay for a stock that’s continually inflated by specious media-driven hype.\n\n...\n\nThings could get much darker if Oracle plunges below $50, as at that point the encumbrances of his various enterprises and his own margin loans could become too much to avoid having to liquidate Oracle stock. If that happens, it creates a vicious cycle that will potentially involve selling off Paramount, dumping further Oracle shares, or even trying to engineer a firesale for the company.\n\nSidenote: While it’s true that Oracle’s software is economically important — its database systems and ERP platforms power a bunch of big businesses and government organizations — I don’t believe that any external intervention (whether that be an external investor chucking it some cash, or some form of bailout) would be able to stop the pain that’s coming to it.\n\nSimply put, the bets it made are too big — and, economically important Oracle’s software might be, there’s no reason that said software couldn’t continue development under the stead of another company.All of this was entirely avoidable if he had never met Sam Altman, and never gave in to the temptation of the AI trade.\n\n* Caveat. Oracle will survive in some form: \"While its many government contracts and national security significance make it unlikely that Oracle would be allowed to *die*, the collapse of its only growth segment will likely spell dark times for a company [ that’s already laid off 21,000 people](https://www.cnbc.com/2026/06/23/oracle-ai-job-cuts-layoffs-21000.html?ref=wheresyoured.at) as a means of funding its AI buildout.\"", "url": "https://wpnews.pro/news/if-things-get-really-bad-ellison-can-always-sell-that-island-back-to-hawaii", "canonical_source": "https://observationalepidemiology.blogspot.com/2026/07/if-things-get-really-bad-ellison-can.html", "published_at": "2026-07-17 11:30:00+00:00", "updated_at": "2026-08-04 15:57:39.025174+00:00", "lang": "en", "topics": ["artificial-intelligence", "ai-infrastructure", "ai-startups", "ai-policy"], "entities": ["Oracle", "OpenAI", "Larry Ellison", "S&P Global", "Stargate", "Vital Knowledge", "Carl Quintanilla", "Ed Zitron"], "alternates": {"html": "https://wpnews.pro/news/if-things-get-really-bad-ellison-can-always-sell-that-island-back-to-hawaii", "markdown": "https://wpnews.pro/news/if-things-get-really-bad-ellison-can-always-sell-that-island-back-to-hawaii.md", "text": "https://wpnews.pro/news/if-things-get-really-bad-ellison-can-always-sell-that-island-back-to-hawaii.txt", "jsonld": "https://wpnews.pro/news/if-things-get-really-bad-ellison-can-always-sell-that-island-back-to-hawaii.jsonld"}}