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

CNBC’s Jim Cramer on Tuesday proposed that action from Oracle could slow down other hyperscalers’ enormous artificial intelligence spending, saying the OpenAI partner should show “discipline.”

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

Cramer named five tech behemoths engaged in massive AI spending: Amazon, Microsoft, Google, Meta and OpenAI in partnership with Oracle. These names are trying to outspend each other, building data centers wherever they can, Cramer said. He added that they’re also trying to keep rivals from encroaching on their core businesses.

This “reckless, imprudent data center spending” has sent these stocks’ valuations plummeting, Cramer said. He suggested that OpenAI “is funded by venture capitalists and the company seems willing to spend itself to death.” Other companies will try to keep up as long as the the ChatGPT maker keeps spending, Cramer continued. OpenAI has committed to spending over $300 billion over five years on Oracle’s technology, and its many commitments to other companies total close to $1.4 trillion.

But Oracle’s $18 billion bond issuance drew scrutiny across Wall Street, Cramer said, as many investors aggressively bought credit default swaps — insurance paid out if a company defaults on its obligations. If Oracle pumps the breaks on spending, competitors could follow suit and see their stocks climb, Cramer said.

“This way Oracle stays alive, and OpenAI is forced to choose which businesses it truly wants to target,” he said. “Because he who defends everything defends nothing.”

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

Sign up now for the CNBC Investing Club to follow Jim Cramer’s every move in the market.

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