Oracle Corporation (ORCL)

But it doesn’t fully explain the last update I haven’t discussed: Oracle’s MASSIVE RPO backlog and commitment from OpenAI.

And they’re dipping into the honeypot of leverage to get into the AI CapEx game. From Doug O’Laughlin:

> _There is no way for Oracle to pay for this with cash flow. They must raise equity or debt to fund their ambitions. Until now, the AI infrastructure boom has been almost entirely self-funded by the cash flows of a select few hyperscalers. Oracle has broken the pattern. It is willing to leverage up to hundreds of billions to seize a share._

So why are they willing to do this when others aren’t?

My interpretation is this: the other hyperscalers are making their best guess expected value calculation while Oracle has an expected utility calculation they’re making.

Warren Buffett explained expected value simply here:

> _“Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we’re trying to do. It’s imperfect, but that’s what it’s all about.”_

BUT let me introduce the idea of expected utility. From Michael Mauboussin:

> _Economists typically translate expected value into expected utility, an idea that Daniel Bernoulli, a mathematician, introduced in 1738. Utility is a measure of satisfaction and varies from person to person based on individual preferences._

In uncertain conditions, individuals will optimize for expected utility rather than solely expected value. For example, if a favorable casino offered a gambler a bet that they have positive expected value on, BUT the catch is they have to bet their home on it. A person with one home should not make that bet, but someone with ten homes should. (I have no doubt this is deeply flawed to any economist reading this article.)

Whether or not Amazon, Google, and Microsoft lever up to invest even more in this boom, there’s no additional utility for them. They’ll still be one of the big three cloud vendors.

But Oracle, by taking the additional risk with leverage, DOES get expected utility from this. They can move from being a distant fourth-place cloud vendor, to becoming one of the “big four” cloud vendors.

So when you ask Larry Ellison if he’d rather play it safe and stay where they’re at, or make the bet others aren’t if the result is a state change in how Oracle is viewed, he’ll take that bet every time.