The tech world is reeling after President Trump’s announcement of the Stargate Project, a $500 billion initiative designed to catapult the U.S. to AI supremacy.
The project, which will see SoftBank, OpenAI and Oracle Corp. (NYSE:ORCL) join forces to build cutting-edge AI infrastructure, has immediate implications for key tech players like Microsoft Corp. (NYSE:MSFT) and Oracle, as well as data centers, according to Goldman Sachs analyst Kash Rangan.
“The Stargate Project is solidifying the importance of Gen-AI as an important tech theme for the years ahead” Rangan said in a note released Thursday.
Microsoft: Early Bird Catches The Worm
Rangan sees the Stargate Project as strongly positive for Microsoft. As an early investor in OpenAI, Microsoft has already committed heavily in AI infrastructure.
The new project, while potentially increasing competition, reinforces Microsoft’s existing advantages. “Being early to market and operational scaling experience is important,” Rangan said.
The analyst highlights the updated terms of Microsoft’s partnership with OpenAI mitigate risks while maintaining significant upside.
“From a financial perspective, MSFT gets to keep the equity upside while minimizing if not eliminating the risk given its involvement at ground zero with more parties stepping though Stargate to alleviate the capital burden,” Rangan said.
Oracle: Long-Term Potential, Near-Term Uncertainties
While Oracle stands to benefit from increased demand for AI services, Rangan cautions that these benefits may take time to materialize.
“It could not be until 2028 that Oracle gets to experience material benefits from the Stargate JV,” he notes.
This lengthy timeline is partly attributed to the substantial lead time required for the construction of necessary datacenter equipment.
“We note that this is likely to take time to play out as supply constraints for necessary datacenter equipment have a ~3 year lead time,” he added.
Furthermore, the analyst highlighted uncertainties surrounding Oracle’s financial commitments to the project, noting that its planned CapEx of over $15 billion in fiscal-year 2025 may need upward revisions.
Datacenter Impact: Short-Term Boost, Long-Term Questions Remain
The Stargate Project presents a mixed bag for datacenter operators like Digital Realty Trust Inc. (NYSE:DLR) and Equinix Inc. (NASDAQ:EQIX).
In the short term, the project could provide a boost, driven by tighter supply-demand dynamics in the market.
“We see the announcement as a tactical positive, as we believe it reflects tighter supply/demand market dynamics than the market expects over the next two years,” Rangan said.
Yet, the long-term impact remains uncertain with the investment bank flagging the risk of shifting away from outsourced data centers.
If OpenAI, which may utilize third-party providers like Digital Realty, decides to primarily leverage the infrastructure built by the Stargate Project, it could significantly diminish the demand for external data center services.
Essentially, the Stargate Project could disrupt the existing market dynamics, posing a potential threat to the long-term growth of companies like Digital Realty.
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