Move Over CHIPS Act, Stargate Is The Future

As explained by OpenAI , the initial equity investments in Stargate will come from SoftBank, Oracle, OpenAI and MGX, the technology fund based in Abu Dhabi. SoftBank and OpenAI are the lead partners, with SoftBank taking financial responsibility and OpenAI in the operational lead. Softbank's Son will be the project's chairman.

Nvidia, Arm (the British semiconductor design company owned primarily by Softbank), Microsoft, Oracle and OpenAI are the project's technology partners. Oracle, Nvidia and OpenAI will build and operate the computing system.

OpenAI has long-standing relationships with both Nvidia and Microsoft. Softbank has partnered with Nvidia to create a nationwide AI grid in Japan .

Following Trump to the podium, Ellison, Son and Altman talked about healthcare-related applications from AI-enabled cross-referencing of health records and procedures to cancer detection and treatment, including the development of mRNA cancer vaccines.

But there are other possibilities, including factory automation and national defense. The name Stargate, of course, is reminiscent of Elon Musk's Starlink satellite company.

The stock market likes the idea. Oracle's share price was up 7.2% on Tuesday and another 4.6% in after-hours trading. In Japan (across the International Date Line), the share price of Softbank Group was up more than 10% on Wednesday and up another 5% on Thursday. The share prices of Nvidia, TSMC, Microsoft and server maker Super Micro also rose.

Stargate is pitched as a made-in-America-for-America project, but the Nvidia AI processors at the core of the data centers will be made by Taiwan's TSMC, at first entirely in Taiwan, then partly in the US.

On January 10, TSMC began fabricating integrated circuits for Apple at its new factory in Arizona, with AMD and Nvidia likely to be its next customers. Outgoing commerce chief Gina Raimondo told the press,“For the first time ever in our country's history, we are making leading edge four-nanometer chips on American soil, American workers – on par in yield and quality with Taiwan.”

TSMC Chairman and CEO C C Wei , speaking to investors on the company's 2024 earnings call on January 16, confirmed this:

“Building on the successful result of our earlier engineering wafer production, we were able to pull ahead the production schedule of our first fab in Arizona. Our first fab has already entered high-volume production in 4Q '24, utilizing N4 process technology with a yield comparable to our fabs in Taiwan. We expect a smooth ramp-up process... we are confident to deliver the same level of manufacturing quality and reliability from our fab in Arizona as from our fabs in Taiwan.”

Wei also said that,“Our plans for the second fab and third fab in Arizona are also on track. These fabs will utilize even more advanced technologies such as our N3, N2 and A16, based on our customers' needs.”

In plain English, this means that TSMC will be making 4nm chips in Arizona starting this year and progress to 3nm, 2nm and 1.6nm (16-angstrom), probably by the end of the decade. TSMC is already ahead in 3nm production and is likely to lead Samsung and Intel all the way to 1.6nm and smaller. TSMC currently makes Nvidia's Blackwell AI processors using its 4nm process.

All these process technologies were and are being developed and produced first in Taiwan, close to the company's R&D and where the procedure is well-established and the capacity much larger. This suggests that whatever deal Trump makes with China, he will not want the production of Stargate's key component to be disrupted.

Commenting on the three executives' praise for Trump, a retired Silicon Valley executive and advisor to the US government on the subject of high-tech competitiveness said,“The game with the current administration is zero-sum.”

And that it is considering Trump has already cut more than $300 billion worth of government funding under Biden's Inflation Reduction Act and Department of Energy loan program, to be replaced and then exceeded by $500 billion from the private sector.

A West Coast venture capitalist who is no Trump fan wrote in an email that“It's all part of the mad scramble for more computing power and more energy to fuel it... Remember Trump's first term. He loves to orchestrate big announcements where he takes credit for investments that were already planned or vapor that never happens. It's all part of everyone seeking to ingratiate themselves with Dear Leader. Because that's what you have to do in an autocratic state.”

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Elon Musk , CEO of Tesla, wrote on X,“They don't actually have the money. SoftBank has well under $10 billion secured. I have that on good authority.” But if there is one thing that Son is good at, it's raising money. In 2017, Softbank launched the Vision Fund , a technology-focused venture capital fund with more than $100 billion in capital – the world's largest such fund at the time.

For Musk, whose xAI competes with OpenAI and has taken it to court , Stargate is a powerful new competitor. And perhaps worse than that, Ellison, Son and Altman – high-tech moguls like himself – now also have Trump's ear.

If the build-out of Stargate's data centers proceeds according to plan, Microsoft, Google and Amazon are likely to lose their first-mover advantage and oligopolistic profit margins in AI-related cloud computing. This is a big opportunity for Oracle , which provides cloud computing services across the US and in 25 countries worldwide.

Another critic, physician and biochemist Robert Malone , has published an essay entitled“AI, mRNA, Cancer Vaccines and“Stargate”: Reality check. Curb your enthusiasm, and beware of grifters.”

He writes:“I can't believe that we are being spoon-fed this hype from the likes of Oracle's Larry Ellison... Having this guy lecture us on mRNA vaccines for cancer is over the top. This is so amazingly (and dangerously) naive that I can hardly believe I am hearing it.”

Maybe so, but Ellison, Son and Altman were delivering a pitch for AI infrastructure, not explaining the technology roadmaps of companies that will use their data centers. They might be over-optimistic, but they are sincerely interested in healthcare and believe that AI can make a meaningful contribution to the analysis of enormous quantities of medical-related data.

Malone also objects to“bankrolling some new 'cancer moonshot' program named after a science fiction TV program.” So, is Stargate a wise use of money or a reckless boondoggle? After all, $500 billion is nearly ten times the $52.7 billion in grants and loans provided by the CHIPS Act. Only time will tell.

Follow this writer on X: @ScottFo83517667

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