Oracle moves to shield itself from AI buildout risks
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Oracle is recognizing the growing risks of data center development as it takes steps to protect itself from steep costs on a massive project in New Mexico that will provide computing power to OpenAI.
Why it matters: The move appeared to unnerve investors who are questioning the foundations of the AI economy.
Driving the news: Oracle, the main tenant of the coming Project Jupiter data center campus, delivered a force majeure notice to the developer, Blue Owl unit Stack Infrastructure, amid growing concerns about a possible delay in completion.
- A force majeure clause is meant to relieve a party from contractual obligations when events beyond its control keep it from fulfilling its commitment.
The big picture: Force majeure has historically been used to cancel or revise deals based on a major, unexpected occurrence — such as a weather catastrophe or geopolitical disruption — but this raises the possibility that it could be used to address delays stemming from public or regulatory opposition.
- "In AI data center projects, force majeure is no longer a back-end boilerplate provision," Quinn Emanuel Urquhart & Sullivan attorneys wrote in a recent client alert.
- "It is a core litigation and risk-allocation tool that can determine whether a delay remains isolated—or cascades through the project's construction, customer, power, insurance, and financing documents."
The intrigue: It's a contract term pretty standard in the project finance world, but less familiar to many of the investors in the AI borrowing binge, Axios' Emily Peck writes.
- They're used to lending money to staid investment grade corporations, says Johnathan Owen, a portfolio manager at TwentyFour Asset Management, who covers investment grade debt.
- "I'm sure a lot of these desks are aggressively going through these docs to find out what risks they're actually exposed to," he says.
Between the lines: Oracle's move comes after New Mexico's top land official in July rejected a gas pipeline meant to supply on-site fuel cells for the facility —a regulatory setback that could contribute to a years-long delay, Axios' Katie Fehrenbacher reported.
- "By asserting force majeure now, it positions itself to defer payments on capacity it cannot yet energize, should the campus fail to come online in 2028 as planned." William Blair analyst Sebastien Naji said Thursday in a research note.
What they're saying: "Project Jupiter remains on our planned schedule. We are committed to New Mexico and confident in our path forward," Oracle VP Michael Egbert said in a statement.
- "Force-majeure notices are commonplace in developments of this scale and are often used to preserve contractual rights among project partners. They do not, by themselves, establish a project delay or change delivery expectations," he added.
- A Blue Owl spokesperson said in a statement that the firm remains "fully aligned" with Oracle on the data center development. "This notice does not change the financial commitments to this multiyear project."
The impact: Oracle shares closed down 3.5% Thursday after paring steeper losses in the morning. Blue Owl finished down 3.6%.
- "We believe the near-term impact to Oracle is limited," Naji said.
- "More broadly though, the concern about data center delays pushing out revenue recognition ... will continue to be a focal point as investors gauge the company's ability to deliver" on the compute capacity.
Our thought bubble: Any reason to believe that data center deals could be delayed or collapse due to public opposition will fuel ongoing concerns about a domino effect in the AI economy — in large part because public opposition is stiffening.
- AI leaders like Nvidia CEO Jensen Huang have dismissed fears of growing risk from circular financing deals.
