Oracle Corp.’s stock tumbled more than 5% Wednesday following reports that Blue Owl Capital, its largest data center partner, withdrew from negotiations to fund a planned $10 billion facility in Michigan, raising fresh concerns about the cloud computing giant’s debt levels and aggressive artificial intelligence (AI) spending strategy.
The Financial Times first reported that discussions between Blue Owl, lenders, and Oracle over the massive data center project in Saline Township had stalled. Sources familiar with the matter cited concerns about Oracle’s mounting debt obligations and the structure of proposed repayment terms as key factors in Blue Owl’s decision to step back.
Blue Owl has emerged as a major player in the AI infrastructure boom. It previously partnered with Oracle on data center developments in Texas and New Mexico, and separately backing Meta Platforms Inc.’s large-scale Louisiana facility. However, a source close to the company indicated that Blue Owl also harbored concerns that local political issues in Michigan could delay construction timelines.
Oracle quickly moved to dispute the report. Company spokesman Michael Egbert said its development partner, Related Digital, “selected the best equity partner from a competitive group of options, which in this instance was not Blue Owl.” Egbert added that final equity negotiations are proceeding on schedule, though Oracle declined to identify the firm currently involved in funding discussions.
The development adds to mounting investor anxiety about Oracle’s financial positioning. Last week’s earnings report revealed costs rising faster than expected while the company consumed more cash than anticipated. Most alarming to analysts was Oracle’s disclosure of $248 billion in lease obligations in its quarterly SEC filing, intensifying worries about the company’s expanding debt burden.
The situation has sparked broader questions about how major technology companies are financing their AI infrastructure buildouts. Unlike its Big Tech cloud competitors Amazon.com Inc., Google, and Microsoft Corp., Oracle lacks the robust internal cash flow that would allow it to self-fund these massive capital expenditures, according to industry analysts.
Many companies have turned to creative financing arrangements, including joint ventures and special purpose vehicles that keep debt off their balance sheets, as well as issuing substantial corporate bonds. Such approaches have drawn scrutiny from investors concerned about the sustainability of AI-related spending.
Oracle’s stock decline Wednesday contributed to a nearly 18% drop for the month. The company’s heavy reliance on OpenAI to achieve ambitious revenue targets has also unsettled shareholders. Credit markets have reflected these concerns, with Oracle credit default swap spreads reaching their highest levels since 2009 last week despite company executives’ commitment to maintaining the firm’s BBB investment-grade credit rating.
Oracle executives have consistently pushed back over concerns about Oracle’s ability to deliver on major contracts, particularly its infrastructure commitments to OpenAI as part of the Stargate digital infrastructure project. In September, analysts at KeyBanc Capital Markets estimated Oracle could require $100 billion in borrowing over four years to fulfill these obligations.
However, Oracle Cloud Infrastructure CEO Clay Magouyrk sought to allay investor fears during the company’s latest earnings call this month. He claimed actual financing needs would be “substantially less” than projected.
“We’ve read quite a few reports that show an expectation of upwards of $100 billion needed for Oracle to go out and complete this build-out,” Magouyrk told analysts. “Based on what we see right now, we expect we will need less, if not substantially less, money than that amount.”
The company delivered 400 megawatts of data center capacity to customers during the quarter and increased GPU capacity deliveries by 50% compared to the previous quarter. Oracle also raised its full-year capital expenditure forecast by $15 billion to $50 billion, up from the prior estimate of $35 billion.
To manage costs, Magouyrk said Oracle is exploring alternative financing models, including arrangements where customers provide their own chips and leasing GPUs from manufacturers like NVIDIA Corp. and AMD Inc. rather than purchasing them outright.
“We’re committed to maintaining our investment-grade debt rating,” Magouyrk said.
