A Blog by Jonathan Low

 

Jan 22, 2025

How the Stargate's $500 Billion Already Means Greater Returns For AI Investing

Within a day of the Stargate AI infrastructure project's announcement, the market value of its two primary managers - Oracle and SoftBank - rose by over $40 billion. 

Though big tech companies will lead, Stargate has already announced it will be adding more equity investors - a potentially profitable opportunity for venture capital. But the bigger break may be that this signals US government commitment to AI - which has run into considerable skepticism this past year - as even Goldman Sachs raised questions about its financial returns. With the 'full faith and credit' of the US government behind AI now, at least some of those concerns will abate. An irony in all this is that the industry which has generated so much wealth from intangibles may now see its next great pay day in part from investment in tangible assets. But value in tech is nothing if not adaptible. JL

Eliot Brown and colleagues report in the Wall Street Journal:

Stargate, led by OpenAI and SoftBank, will build data centers for AI. Oracleand MGX, an investor backed by the United Arab Emirates, are equity partners. Microsoft, Arm and Nvidia are “technology partners.” The companies are committing $100 billion and plan to invest $500 billion over the next four years. SoftBank stock rose more than 10%, while Oracle’s gained more than 8%, together adding $40 billion in market value. The plan carries “less competitive and execution risk than a chip design venture." The total figure would be large even by Silicon Valley standards and underscores the extent to which tech and the government are betting on AI as the future of the economyStargate plans to bring on additional equity investors and is also planning to raise debt from third parties
increase; green up pointand MGX, an investor backed by the United Arab Emirates, are also equity partners in the venture.

Some of the world’s most prominent names in technology are pledging to pour as much as half a trillion dollars into building artificial-intelligence infrastructure in the U.S., in the latest high-profile initiative timed with the start of the Trump administration.

The joint venture, known as Stargate, is led by the ChatGPT maker OpenAI and the global tech investor SoftBank Group. It will build data centers for OpenAI. The database company Oracle ORCL 7.17%increase; green up pointing triangle and MGX, an investor backed by the United Arab Emirates, are also equity partners in the venture.

The companies are committing $100 billion to the venture and plan to invest up to $500 billion over the next four years. The plans, key elements of which remain vague, were announced Tuesday at a White House ceremony with President Trump. SoftBank, Oracle and others have very big artificial-intelligence spending plans with very little detail. Investors are very pleased.

On Tuesday, the new Trump administration said the companies would be part of Stargate, a $100 billion, AI-focused data-center venture, along with OpenAI and Abu Dhabi’s MGX. Microsoft, Arm and Nvidia were named Stargate “technology partners.”

SoftBank stock rose more than 10% Wednesday, while Oracle’s gained more than 8% in off-hours trading—together adding over $40 billion in market value. Arm shares rose 6% premarket; Microsoft and Nvidia shares rallied too.

There were many basic questions left unanswered in the announcement, such as: How much are the individual companies each investing? How will they get a return on their investment?

But investors seemed to appreciate the basic theme of AI, and some clarity that SoftBank’s money would go into data centers, according to Astris Advisory analyst Kirk Boodry.

The plan, he said, carries “less competitive and execution risk than will be the case in a chip design venture”—referring to another AI-related area that SoftBank has been eyeing.

The $100 billion sum includes projects that the companies already announced and initiated under the Biden administration, people familiar with the matter said.SoftBank, Oracle and others have very big artificial-intelligence spending plans with very little detail. Investors are very pleased.

The total figure—if realized—would be large even by Silicon Valley standards and underscores the extent to which tech companies and government officials are betting on AI as the future of the American economy. It also shows how much tech executives want to broadcast their enthusiasm at the start of the new administration.



OpenAI Chief Executive Officer Sam Altman, SoftBank 9984 10.62%increase; green up pointing triangle CEO Masayoshi Son and Oracle Chairman and Chief Technology Officer Larry Ellison went to the White House for the announcement Tuesday, the second day of the second Trump administration.

Stargate’s first data center will be in Texas. The site, which started construction last year, will be operated by Oracle and used by OpenAI, a person familiar with the project said.

 

The companies didn’t disclose how much cash each partner would contribute. OpenAI has raised billions of dollars, but still loses money. Oracle has about $11 billion in cash and marketable securities but more in debt. SoftBank has roughly $30 billion of cash on hand.

OpenAI said it would operate the venture, while SoftBank will finance it. Stargate will have a separate board of directors and hire a new CEO. SoftBank’s Son will be chairman.

Stargate plans to bring on additional equity investors, people familiar with the matter said. SoftBank is also planning to raise debt from third parties to pay for Stargate’s projects.

In a separate announcement, Microsoft said it would continue to be the primary provider of cloud computing for OpenAI but would also allow the startup to use other providers on a case-by-base basis.

OpenAI kicked off the modern AI boom when it released ChatGPT in 2022. The chatbot’s popularity forced tech companies to redraw their product plans and earmark billions of dollars to build AI systems and tools. Most of that money goes toward building data centers to hold the racks of the pricey and powerful chips that power AI systems.

Goldman Sachs has estimated that companies, including the American tech giants, would spend an estimated $1 trillion on capital expenditures in coming years. That would include large outlays in data centers, chips and the power grid.

Altman has been meeting with investors from the Middle East to pitch them on his own tech initiative to expand the world’s chip-making capacity. Such an effort might require several trillions of dollars, The Wall Street Journal previously reported.

There were many basic questions left unanswered in the announcement, such as: How much are the individual companies each investing? How will they get a return on their investment?



1 comments:

Emily Jones said...

Wow, this is a fascinating insight into the economic potential of interstellar travel! The concept of leveraging technologies like Stargates to revolutionize trade and resource acquisition feels like a leap into a sci-fi future that's closer than we think. I wonder how industries will adapt to these possibilities—especially in sectors like logistics and resource management. It’s exciting, yet also raises questions about governance and equitable distribution of such advancements. Great read!

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