Oracle Corp. (ORCL) experienced a sharp decline in its stock price, falling more than 5% on Wednesday, following a report by the Financial Times indicating that Blue Owl Capital (OWL), a key private lender, will not support a $10 billion financing deal for Oracle’s upcoming data center project. The news comes as the software company faces heightened scrutiny from investors regarding its increasing reliance on debt to fund its artificial intelligence (AI) computing initiatives.
Blue Owl, which has been Oracle’s primary partner for data center projects, had been in discussions to finance a significant facility in Michigan. However, those negotiations reportedly stalled, raising concerns about the financial viability of the project. In response, Oracle spokesperson Michael Egbert stated that Related Digital, Oracle’s development partner, “selected the best equity partner from a competitive group of options, which in this instance was not Blue Owl.”
The failure to secure funding from Blue Owl, which has been an influential player in the AI data center sector, raises questions about how Oracle will finance its ambitious expansion plans. Blue Owl has previously collaborated with Oracle on projects in both Texas and New Mexico and has also partnered with Meta Platforms Inc. (META) to finance a large facility in Louisiana.
Concerns regarding the financial underpinnings of such ventures have intensified, especially given that debt associated with joint ventures or special purpose vehicles often remains off companies’ balance sheets. Analysts have pointed out that Oracle lacks the strong internal cash flow enjoyed by its larger tech peers, compounding worries about its financial health amid substantial corporate bond issuances by major technology firms this year.
The decline in Oracle’s stock is part of a broader trend, with shares now down nearly 18% for the month. The downturn follows disappointing earnings results released last week, which revealed that Oracle’s costs have risen more than anticipated, alongside a cash outflow that exceeded investor expectations. The company’s quarterly SEC filing also disclosed $248 billion in lease obligations, further amplifying apprehensions regarding its growing debt. Additionally, Oracle’s heavy dependence on OpenAI to achieve its ambitious revenue targets has left shareholders feeling uneasy.
Despite assurances from Oracle executives that the company is committed to maintaining an investment-grade credit rating, which currently stands at BBB for its bonds, investor confidence has waned. This has led to increased activity in Oracle credit default swaps, with spreads reaching their highest levels since 2009 last week, signifying investor concern over potential credit risk.
As Oracle navigates these challenges, the question of how it will finance its future endeavors looms large. The company’s focus on expanding its AI capabilities hinges not only on securing necessary funding but also on restoring investor trust amid growing financial scrutiny. The developments of the past week could set the tone for Oracle’s strategic decisions moving forward, potentially impacting its role in the rapidly evolving tech landscape.
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