Oracle spooks the stock market after key partner refuses to fund $10B Michigan data center project

Shares of the cloud infrastructure and database giant Oracle Corp. fell more than 4% during regular trading today after a Financial Times report claimed that one of its key financial partners, Blue Owl Capital LLC, declined to fund the construction of a $10 billion data center project in Michigan.

Blue Owl Capital had reportedly been in advanced talks with Oracle and other lenders regarding an investment in the 1-gigawatt data center facility in Saline Township, Michigan. However, the report said Blue Owl decided to walk away from the deal after failing to agree on the terms of the loan.

The report sent shockwaves through Wall Street because Blue Owl has emerged as a key partner in Oracle’s ambitious, multibillion-dollar data center buildout over the last two years. It funds the construction of and owns many of Oracle’s new data centers before leasing them back to the company.

As such, its decision set off alarm bells at a time when investors have become increasingly nervous about the prospect of a “bubble” in the artificial intelligence industry. The tech-heavy Nasdaq, which has been buoyed by rampant AI investment, fell 1.8% today.

Oracle responded to the report in a statement to Bloomberg, trying to quell fears that the project might be in trouble. The company said its final negotiations over an equity deal for the data center remain “on schedule” and that its development plans are still intact. It confirmed Blue Owl is not involved in the project, but said its developer partner The Related Companies LP has chosen an alternative equity partner from a group of competing investors.

The Bloomberg report explained that the Michigan facility is a key part of Oracle’s effort to scale its cloud computing capacity to support AI workloads and compete with rivals such as Amazon Web Services Inc., Google LLC and Microsoft Corp. One of its primary customers is expected to be OpenAI Group PBC, which has previously named Oracle as a key partner of its ambitious, $500 billion Stargate data center building initiative.

The market’s reaction to the news reflects growing unease, not only about the AI market in general, but also Oracle specifically. The database giant has taken on billions of dollars in debt and dramatically increased its capital expenditures this year to fuel the development of AI infrastructure.

However, the company’s spending plans have come under scrutiny amid the mounting debt it has taken on to fund them, with many investors raising concerns that its prospects are too closely tied to those of OpenAI. The ChatGPT maker, which is valued at around $500 billion, loses billions of dollars annually and has not yet come up with a plan to achieve profitability over the long term. It has also not yet detailed how it will finance its plans to build more than $1 trillion worth of data center infrastructure by the end of the decade.

That explains why Oracle’s stock has lost almost 40% of its value since the middle of September. That erased most of the gains that were made earlier this year when it revealed it had booked nearly $455 billion in cloud orders, mainly from OpenAI.

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