Oracle’s data center delay risks blowing up AI financing, Morgan Stanley warns
Oracle's decision to invoke force majeure on its New Mexico data center project, citing potential power delays, is causing investors to re-evaluate AI infrastructure financing. Morgan Stanley warned this action adds significant uncertainty to the debt market, potentially impacting lease structures and borrowing costs across the industry.
U.S. tech giant Oracle has issued a force majeure notice for a major data center project in New Mexico, developed by a Blue Owl unit, citing potential delays in securing power. This action has led global investment bank Morgan Stanley to warn of significant repercussions for the AI infrastructure debt market and how investors reassess financing structures for rapidly expanding AI computing capacity.
Following Oracle's announcement, its shares fell over 7%. Morgan Stanley highlighted that this development amplifies existing market pressures from rising borrowing costs and increased bond supply, impacting projects with substantial construction risks and those backed by weaker-credit tenants. The bank noted that Oracle's move, an "escalation" given it occurred well before scheduled delivery, quickly widened spreads on data-center-related bonds and pushed the cost of five-year credit default swaps on Oracle debt to an all-time high.
While Oracle cannot terminate its lease with Blue Owl, it is reportedly seeking to delay payments if its 'Project Jupiter' facility is not operational by its planned 2028 date. Blue Owl, which holds $3 billion in equity in the project, earns a 9% yield during development, with Oracle responsible for debt costs; the force majeure would prolong the lower development-stage rent period. Project Jupiter, a 1,400-acre campus, has secured $18 billion in loans and is a key part of Oracle's broader 'Stargate' initiative with OpenAI and SoftBank Group to build AI infrastructure.
Beyond power challenges, the project has also faced delays related to a natural-gas pipeline and legal challenges concerning water and air-quality permits. The broader AI infrastructure buildout is grappling with resource scarcity and increasing public opposition over its energy and water consumption.