OpenAI Faces Friction with SoftBank Over Data Center Plans
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 1 hour ago
0mins
Should l Buy GOOGL?
Source: stocktwits
- Reduced Funding Plans: OpenAI is now targeting approximately $600 billion in AI infrastructure investment through 2030, significantly lower than the previously touted $1.4 trillion, reflecting concerns about future investment returns that could impact its long-term strategic direction.
- Stargate Project Obstacles: The ambitious Stargate initiative, originally planned with a $500 billion investment, has encountered significant roadblocks due to disagreements with SoftBank over data center construction, highlighting the challenges OpenAI faces in executing large-scale projects.
- Collaboration Conflicts with SoftBank: Fundamental disagreements between OpenAI and SoftBank regarding data center locations and project management have emerged, and although a compromise was reached with a long-term lease, SoftBank retains control over the facility, potentially limiting OpenAI's autonomy in development.
- Market Reaction and Investor Confidence: Growing fears about AI investment returns have led to a broad selloff in tech stocks, and OpenAI's reduced spending plans may further undermine investor confidence, raising questions about the company's future growth potential.
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Analyst Views on GOOGL
Wall Street analysts forecast GOOGL stock price to rise
33 Analyst Rating
26 Buy
7 Hold
0 Sell
Strong Buy
Current: 302.850
Low
305.00
Averages
374.25
High
400.00
Current: 302.850
Low
305.00
Averages
374.25
High
400.00
About GOOGL
Alphabet Inc. is a holding company. The Company's segments include Google Services, Google Cloud, and Other Bets. The Google Services segment includes products and services such as ads, Android, Chrome, devices, Google Maps, Google Play, Search, and YouTube. The Google Cloud segment includes infrastructure and platform services, collaboration tools, and other services for enterprise customers. Its Other Bets segment is engaged in the sale of healthcare-related services and Internet services. Its Google Cloud provides enterprise-ready cloud services, including Google Cloud Platform and Google Workspace. Google Cloud Platform provides access to solutions such as artificial intelligence (AI) offerings, including its AI infrastructure, Vertex AI platform, and Gemini for Google Cloud; cybersecurity, and data and analytics. Google Workspace includes cloud-based communication and collaboration tools for enterprises, such as Calendar, Gmail, Docs, Drive, and Meet.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Debt Market Dynamics Shift: As hyperscalers begin to finance AI capex through debt markets, investor concerns about their creditworthiness have emerged; Mirabaud's Al Cattermole noted that the previous belief that AI spending would primarily rely on cash flow is changing, potentially impacting credit ratings.
- Increased Debt Burden: Recent significant debt issuances by companies like Oracle and Alphabet have raised scrutiny over their debt loads, with Oracle issuing $18 billion and Alphabet $20 billion, including a rare 100-year bond, leading investors to question their financial health.
- Emerging Risks: Investors are worried that as AI hyperscalers take on more leverage, hidden risks may arise, particularly as rapid technological advancements could render data centers obsolete, impacting debtholders; Vanguard's Shaan Raithatha emphasized the need for vigilance despite these companies' current strong financial positions.
See More
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- Reduced Funding Plans: OpenAI is now targeting approximately $600 billion in AI infrastructure investment through 2030, significantly lower than the previously touted $1.4 trillion, reflecting concerns about future investment returns that could impact its long-term strategic direction.
- Stargate Project Obstacles: The ambitious Stargate initiative, originally planned with a $500 billion investment, has encountered significant roadblocks due to disagreements with SoftBank over data center construction, highlighting the challenges OpenAI faces in executing large-scale projects.
- Collaboration Conflicts with SoftBank: Fundamental disagreements between OpenAI and SoftBank regarding data center locations and project management have emerged, and although a compromise was reached with a long-term lease, SoftBank retains control over the facility, potentially limiting OpenAI's autonomy in development.
- Market Reaction and Investor Confidence: Growing fears about AI investment returns have led to a broad selloff in tech stocks, and OpenAI's reduced spending plans may further undermine investor confidence, raising questions about the company's future growth potential.
See More
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- Rising Valuation for Alphabet: Alphabet's forward P/E ratio increased from around 20 at the end of August to 30 by December, driven by robust growth in its core search and cloud businesses, prompting Klarman to lock in profits at elevated valuations.
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- Strong Cloud Business Growth: Google Cloud's revenue grew 48% year-over-year to $17.7 billion in Q4 2025, with a backlog nearing $240 billion, indicating robust market demand; however, growth in 2026 will depend on the rapid expansion of AI infrastructure.
- Capital Expenditure Plans: Alphabet plans to invest between $175 billion and $185 billion in capital expenditures in 2026, primarily for expanding servers and data centers, which may increase operating costs but also provide financial flexibility for future AI investments.
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- Long-Term Investment Opportunity: Amazon's stock currently trades below the price when Klarman established his new position, with a projected 20% earnings growth in 2027, and its 22 times earnings multiple relative to analysts' expectations appears attractive, suggesting that long-term investors still have a chance to follow Klarman's investment ideas.
See More
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- Capex Surge: UBS data indicates that AI hyperscalers' capital expenditures could exceed $770 billion by 2026, a 23% increase from previous estimates, leading to an additional $40 billion to $50 billion in borrowing, which will push public market debt issuance to between $230 billion and $240 billion.
- Debt Market Dynamics Shift: As hyperscalers begin to finance AI capex through debt markets, investor concerns about their creditworthiness have emerged; Mirabaud's Al Cattermole noted that the previous belief that AI spending would primarily rely on cash flow is changing, potentially impacting credit ratings.
- Increased Debt Burden: Recent significant debt issuances by companies like Oracle and Alphabet have raised scrutiny over their debt loads, with Oracle issuing $18 billion and Alphabet $20 billion, including a rare 100-year bond, leading investors to question their financial health.
- Emerging Risks: Investors are worried that as AI hyperscalers take on more leverage, hidden risks may arise, particularly as rapid technological advancements could render data centers obsolete, impacting debtholders; Vanguard's Shaan Raithatha emphasized the need for vigilance despite these companies' current strong financial positions.
See More
OpenAI Faces Friction with SoftBank Over Data Center Plans
- Reduced Funding Plans: OpenAI is now targeting approximately $600 billion in AI infrastructure investment through 2030, significantly lower than the previously touted $1.4 trillion, reflecting concerns about future investment returns that could impact its long-term strategic direction.
- Stargate Project Obstacles: The ambitious Stargate initiative, originally planned with a $500 billion investment, has encountered significant roadblocks due to disagreements with SoftBank over data center construction, highlighting the challenges OpenAI faces in executing large-scale projects.
- Collaboration Conflicts with SoftBank: Fundamental disagreements between OpenAI and SoftBank regarding data center locations and project management have emerged, and although a compromise was reached with a long-term lease, SoftBank retains control over the facility, potentially limiting OpenAI's autonomy in development.
- Market Reaction and Investor Confidence: Growing fears about AI investment returns have led to a broad selloff in tech stocks, and OpenAI's reduced spending plans may further undermine investor confidence, raising questions about the company's future growth potential.
See More
Alphabet's 2026 Outlook: AI Investments and Cloud Growth
- Search Business Moat: In its Q4 earnings call, Alphabet highlighted that AI-powered search experiences are driving increased user engagement and longer query sessions, suggesting that AI may enhance rather than weaken its core advertising business.
- Cloud Growth Potential: Google Cloud's revenue grew 48% year-over-year to $17.7 billion in Q4 2025, with a backlog of nearly $240 billion, indicating that future growth will hinge on a planned $175 billion to $185 billion investment in infrastructure.
- AI Infrastructure Investment: Alphabet plans significant investments in servers and data centers in 2026, which are expected to accelerate cloud growth, as AI customers utilize 1.8 times more products than non-AI customers, indicating strong customer stickiness.
- Margin Pressure and Future Outlook: While rising capital expenditures may pressure operating margins, Alphabet's CFO noted that Gemini AI's unit costs have sharply declined due to efficiency gains, suggesting that profitability may improve as AI adoption increases across its Search and Cloud businesses.
See More
Seth Klarman Cuts Alphabet Stake, Boosts Amazon Investment
- Alphabet Stake Reduction: Seth Klarman cut his stake in Alphabet by over 40% last quarter after the stock surged due to positive news, indicating his astute market timing and profit-taking strategy.
- Increased Amazon Investment: Klarman invested nearly $500 million in Amazon in Q4, making it 9.3% of Baupost's portfolio and the second-largest position, reflecting his strong conviction in Amazon's growth potential amidst market skepticism.
- Rising Valuation for Alphabet: Alphabet's forward P/E ratio increased from around 20 at the end of August to 30 by December, driven by robust growth in its core search and cloud businesses, prompting Klarman to lock in profits at elevated valuations.
- Cloud Market Dynamics: While Amazon's cloud growth lags behind competitors, its larger revenue base and potential for 20% earnings growth make it attractive, showcasing Klarman's ability to identify undervalued opportunities in a competitive landscape.
See More
Alphabet's AI Drives Growth Amid Profitability Concerns
- AI Search Experience Enhancement: In its Q4 2025 earnings call, Alphabet highlighted that AI-powered search experiences, such as AI Overviews and AI Mode, are driving increased user engagement and longer, more complex query sessions, which may enhance the performance of its core advertising business by improving ad intent matching.
- Strong Cloud Business Growth: Google Cloud's revenue grew 48% year-over-year to $17.7 billion in Q4 2025, with a backlog nearing $240 billion, indicating robust market demand; however, growth in 2026 will depend on the rapid expansion of AI infrastructure.
- Capital Expenditure Plans: Alphabet plans to invest between $175 billion and $185 billion in capital expenditures in 2026, primarily for expanding servers and data centers, which may increase operating costs but also provide financial flexibility for future AI investments.
- Profitability Pressure: Although rising capital expenditures may compress operating margins in 2026, Alphabet's CFO noted that the unit costs for Gemini AI have significantly decreased due to efficiency gains, suggesting that profitability may improve as AI adoption increases across its Search and Cloud businesses.
See More
Buffett's Partner Increases Stake in Amazon
- Investment Strategy Shift: Seth Klarman, Buffett's long-time partner, trimmed his Alphabet stake by 41% in Q4 2023, reflecting his keen judgment on market valuations, especially as Alphabet's P/E ratio surged from 20 in August to 30 by December, indicating his caution towards high valuations.
- New Investment Focus: Klarman reinvested nearly $500 million from the Alphabet sale into Amazon, accounting for 9.3% of his portfolio in Q4, making it the second-largest holding, showcasing his confidence in Amazon's future growth potential.
- Cloud Computing Growth Potential: Although Amazon's cloud business growth has lagged behind competitors, its AWS revenue grew 24% year-over-year in Q4 2023, with plans for $200 billion in capital expenditures by 2026 to accelerate growth, indicating market opportunities amid surging AI service demand.
- Long-Term Investment Opportunity: Amazon's stock currently trades below the price when Klarman established his new position, with a projected 20% earnings growth in 2027, and its 22 times earnings multiple relative to analysts' expectations appears attractive, suggesting that long-term investors still have a chance to follow Klarman's investment ideas.
See More
