Lighting the AI Fuse
A short note on Oracle’s AI reinvention, and the handoff from Phase 2 to Phase 3 of the AI trade.
AI is back on the front burner again, and it was Oracle (a name that has been shorthand for legacy tech for most of the last decade) that lit the match.
The focus this week has been on AI after Oracle dropped a blistering cloud forecast and the market snapped back to attention. The stock jumped more than 30% overnight, dragging the whole tech complex with it. Even the perma-sceptics are being forced to lean in again.
Chairman Larry Ellison put it plainly on the call:
“Eventually, AI will change everything, but right now, AI is fundamentally transforming Oracle and the rest of the computer industry, though not everyone fully grasps the extent of the tsunami that is approaching.”
We do. And it’s why this moment matters.
Oracle’s reinvention has turned our attention, and plenty of other investors, back onto AI. This note looks at where that capital will flow next: from the infrastructure powering the boom to the applications that will finally monetise it.
The Hyperscaler Capex Wave
Oracle’s breakout is happening against the backdrop of a capital spending boom unlike anything the sector has seen. A few charts from a recent GS note stood out.
Hyperscaler capex has exploded since 2023.
2024 capex came in 55% higher than consensus expected just a year ago, and 2025 is tracking 51% above prior estimates.
The growth rate likely peaked in 2Q25 near 80% y/y, but the absolute dollar spend is still rising steeply into 2026.
This is classic Phase 2 behaviour. Investors are paying up for the physical infrastructure that powers AI—chips, racks, data centres, power—and the market has rewarded that with parabolic multiples.
But here’s the catch: as growth rates peak, leadership shifts.