Welcome to the podcast.
Today we're talking about an absolutely massive deal between OpenAI and Amazon 38 billion for cloud computing.
Now, there's a reason why this deal hasn't happened until right now.
We're going to break all of that down on the podcast today, as well as cover what like how long they're going to be spending to deploy all of this capital, where they're getting this capital from the sustainability of the AI bubble today and another massive deal that Microsoft also has just made for more cloud compute.
So everyone is firing on all cylinders right now in an absolute arms race to get more cloud compute.
We're going to break all of that down.
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All right.
Let's talk about this $38 billion cloud computing deal.
So the thing that's really incredible here, this is going to be a seven-year deal.
So that averages out to be about $5.4 billion per year over the next seven years.
And this is effective immediately.
OpenAI said that they're going to immediately start using AWS for all of this.
And they're targeting to be deployed with the full capacity of what they're gonna use from AWS by the end of next year.
So basically, they're gonna start onboarding now.
They're gonna start getting everything rolling and training right now.
And by the end of next year they should have everything that they're gonna get from AWS on this particular contract ready to roll.
And they also have the ability to expand further in 2027 and beyond as part of their contract.
If you thought 38 billion was a lot well, come 2027 they have the opportunity to up that even more.
So all of this is following OpenAI's recent restructuring deal that they just did.
And obviously it's gotten a lot of criticism because they just moved from a nonprofit to a for-profit.
But there was a couple of interesting things that came along with this, particularly with the relationship with Microsoft who, If you remember, when Microsoft made the first 10 billion investment into OpenAI, which seemed like wow, this is crazy.
You know, 10 billion, they got basically half the company at the time.
When they made that first massive investment, part of it was that Microsoft had to sign off on any you know use or basically any new contracts for computing services from other firms.
And that's because Microsoft's Azure was basically the exclusive partner for OpenAI until OpenAI basically outgrew the capacity of Azure and now they're having to make a lot of different partnerships with other places.
And, in addition, because Microsoft is working on their own AI models.
I think OpenAI felt like they didn't want to put all their eggs in one computing basket plus.
They just needed way more compute.
So now that they have officially restructured, they're able to go out and start getting other companies to do their compute.
And they didn't waste any time with it.
They immediately jumped into this contract and perhaps they've been talking to AWS's before, but they really couldn't do this AWS deal until they restructured, so that they didn't have to get everything signed off by Microsoft.
So OpenAI's deal right now is that they're doing with Amazon as part of a really big spending move that they're planning on doing.
They're planning on spending over a trillion dollars in the next decade, which is obviously an absolutely astronomical amount of money.
A lot of people have called into question if it's possible, if right now they're making 13 billion, which is like wow, that sounds fantastic.
That's their annual revenue right now.
But if over the next 10 years they need to get that up to 1 trillion, which is massive, absolutely massive.
But I think at the current trajectory it's not out of the question and everyone would appear to think the same thing.
So they have also announced a whole bunch of different partnerships for different data center build-outs that they're gonna be doing.
Particularly, they're doing one with Oracle.
Sam Altman went to the White House and made a big announcement for five new Stargate data centers with Oracle and SoftBank, which was a super big deal.
They're also working with the United Arab Emirates and some others.
OpenAI also secured a deal with NVIDIA and AMD and Broadcom.
So they're making... they're, you know, they're, they're making, securing deals with chip makers that make the actual chips.
They're securing deals with the actual data centers that can run the compute.
And, um, it's, you know, really feels like an all hands on deck.
Now some people are saying that all of this increased investment from open AI and a bunch of other tech giants, we're going to break down a deal from Microsoft that also is just going down.
Some of them are saying that this is all just a big, huge bubble.
Um, they, you know, their $300 billion five-year Oracle deal is pretty huge.
Um, People are wondering if they're able to fund that 60 billion in annual revenue while remaining unprofitable for that.
And so there's a lot, right?
They're spending a lot of money to build out this infrastructure.
And some people think that that's going to put the company into jeopardy.
The argument here is that they're spending an absolute, insane amount of money a trillion dollars in the next 10 years.
And this is sort of unproven and potentially dangerous.
And there's no clear sign of a meaningful return on investment.
Now, what I will say is this is a company that is growing at an absolutely breakneck speed.
And so I believe they will come to a great return on investment.
Everybody knows this company.
It's basically known as the leader in AI.
And the way that I like to think about this is just the fact that AI is going to become more and more integrated into every task right now.
A lot of people talk about, oh, is AI going to replace this job and that job?
And like eventually AI will be able to do many, many jobs that are done by humans today.
And OpenAI right now seems to be the absolute clear leader.
If app store revenue is anything to go by, or basically, I think, annual revenue, OpenAI is smoking everybody else.
And it's almost as big as every other company combined, AI company combined.
So the fact that they are leading this.
If you expect AI spending to continue which personally, that's my stance, because when you start looking at humanoid robots, all of those need some insane compute to actually help power those.
And if Elon Musk's prediction and a lot of other companies' predictions is correct, a humanoid robot inside of every home will become like a car in the next 10 years, where you spend 15, 20 grand or you can get a Facebook marketplace for five grand maybe.
And these things will be able to cook clean, tidy your house, do your dishes, do your laundry, do a lot of your chores.
And yeah, in my opinion, I think that there's a very real case to where that could be a big future.
So in that case, it seems like OpenAI will have the, ability to scale.
Are we in a bubble?
Yes.
How big is it?
When will it pop?
Will it correct?
Will it explode?
Where does it go?
I think is an interesting question.
But there's no doubt that a lot of money is being thrown around right now.
Okay.
I want to talk about Microsoft's deal because, in addition, literally back to back Microsoft has just made a 97 billion deal with Australia's iRen.
This is an AI cloud capacity, basically data center.
And it seems like they are just, you know, leaving no stone unturned, as TechCrunch said, in their quest to secure more compute capacity for meeting customers' heavy demand for AI services.
Honestly, it's interesting because Microsoft is a cloud computing provider.
They have data centers.
They have chips.
Like, Microsoft has access to all of this.
And you know, OpenAI spent 10 billion or, you know, received 10 billion for them and worked with Microsoft as York.
And yet...
They're still going and outsourcing this to other companies because they just need so much more compute and capacity.
So just on Monday, they signed this almost $10 billion deal.
This is a five-year contract with Australia's IREN company.
Now, what's interesting is it is an Australian company, but the data centers are actually based in Childress, Texas.
They're planned to support about 750 megawatts of capacity.
And they also get access to compute infrastructure built with NVIDIA's GB300 GPU.
So it's right they're getting access to the data center, but also all of these NVIDIA chips which are hard to come by today.
They expect that everything's gonna be deployed over phases throughout next year.
So, just like OpenAI, by the end of next year this whole deal should be fully in motion and they should be taking full capacity from from IRN's data center in Texas.
Interestingly enough, IRN said that they are separately buying GPUs and equipment from Dell.
They're spending about $5.8 billion buying GPUs from Dell.
Now can we just pause to take a moment to realize how insane that Microsoft is buying, among other things, access to GPUs from IRN.
Who is buying GPUs from Dell?
Who is buying GPUs from Nvidia?
And iRen is also making deals with Nvidia and OpenAI is also making deals with Nvidia, and Microsoft is also making Like everyone is buying everything from everyone, which is hilarious, right.
Like, Dell, for example, they're just buying it from Nvidia and selling it to iRen.
When iRen is trying to go direct but Nvidia will only sell you so many chips direct.
It is absolutely crazy to me.
What I will say, though, is iRen is more of a data center company, and so...
Dell basically, is just flipping the chips and iRen is actually building the facility that hosts and runs them.
So all of this is coming after Microsoft last month launched its first production cluster, with NVIDIA's GB300s on their Azure system.
So they have their own system.
They're still going to their competitor, in a sense iRen for data center, although maybe you could argue that
That's a good way for a cloud provider to go.
They don't always have to have their own data centers, yada, yada.
It makes sense.
It is just very interesting.
So all of that said, NVIDIA's GB300s are very popular right now.
They're optimized for reasoning models.
They're optimized for agentic AI and for multimodal generative AI.
So basically, you can do text audio video image, everything which is becoming more and more popular.
So Last month, Microsoft also signed a deal with N scale for approximately 200 NVIDIA GB 300 GPUs.
Again, Microsoft has the capability of buying directly from NVIDIA, but NVIDIA won't sell all of the GPUs directly to one provider.
So instead NVIDIA sells them to IRN and they sell them to N scale and Microsoft goes and like, buys capacity on those GPUs from those companies.
It's just fascinating to me.
That particular deal with N scale was using the GPUs in three different data centers in Europe and then one in the US.
So maybe a data center goes, buys the GPUs, sets them up and then Microsoft's like well, you already have them all plugged in.
We'll just rent them from you, and maybe that makes sense.
But you could also imagine a world where Microsoft built their own data centers and just bought all the chips, if NVIDIA would make unlimited chips and supply unlimited chips to any particular user.
That's just not the case today.
So one thing that is interesting to know about iRen that is getting this 10 billion deal basically is it is very similar to CoreWeave, another one of these companies that just grabs all the GPUs, sticks them in a data center and rents them off.
IRent actually started off as a Bitcoin mining operation.
They realized they can make a lot more money from their GPUs today if they put AI workloads on them.
And so they've kind of made that pivot.
It's interesting because even Nvidia, like most recently before ChatGPT came out, Nvidia was making most of their money selling to crypto miners.
And so it's just interesting the evolution of this whole industry.
It went from Nvidia making GPUs that were primarily used by gamers, and then crypto miners, and then AI and you know, Nvidia obviously hit a 5 trillion market cap because of that beautiful, perfect step where they just kept hitting the perfect industry.
So the CEO, Daniel Roberts, expects the Microsoft deal to take up about 10 of IRN's total capacity right.
So it's not like, you know, Microsoft buying the whole company and everything they can produce.
It's about 10 of what they can produce which honestly, is still a lot, but There's only so many companies that'll sign a 10 billion deal with you, so it's pretty great.
And he expects that it's going to make about $1.9 billion in annualized revenue.
Again, if you think about it, that's 2 billion for this company in annualized revenue that it's going to be making.
If this thing's listed on the stock market, it's fantastic for this company.
And so it's just interesting the way everything trickles down.
A lot of companies are benefiting from all of this.
So This is the deal that Microsoft has made almost 10 billion in addition to an absolutely massive, almost 40 billion 38 billion cloud computing deal that OpenAI has made with Amazon's AWS.
The cloud compute wars are going crazy.
I'll be covering all of it.
So if you're interested in finding out what happens next and when these deals reach full capacity by the end of next year, I'll do an update episode on where things sit.
And I'm sure by that point, OpenAI will be signing.
$300 billion deals.
Honestly, you could probably quote me on that by the end of next year with who knows who.
It will be insane.
So thanks so much, everybody, for tuning into the podcast.
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