Wall Street's Appetite for Oracle's $500B Data Center Debt Wanes

The Stargate project represents an unprecedented scale of data center development. Announced a year ago, the venture plans to build a total of 10 gigawatts of data center capacity by 2029—roughly equivalent to the power footprint of New York City on a day of peak electrical consumption.

In October, OpenAI announced it had arranged for the construction of six Stargate sites with a total planned capacity of approximately 7 gigawatts. The company stated this pipeline "puts us on a clear path to securing the full $500 billion, 10-gigawatt commitment" announced at the beginning of 2025.

The financing strategy relies heavily on syndication deals, where major financial institutions band together to share the immense costs and risks. JPMorgan Chase and Mitsubishi UFJ Financial Group led the syndication for the Texas and Wisconsin projects, while Bank of America is leading another syndication for a Michigan campus.

Initial players in these large syndication deals typically seek to sell portions of their loan commitments to other banks and institutional investors. This process allows them to reap quick profits while lowering their exposure to the underlying risk.

The sale of Stargate debt positions has become increasingly difficult. Two bankers and a financing executive familiar with the syndication market noted that the rising perception of risk around Stargate has led lenders to demand higher yields for new debt.

This shift has placed recent syndicators in a challenging position: they can no longer profitably sell off debt that was arranged at tighter spreads just months ago. The market's appetite for Stargate debt has shrunk considerably.

"We are hearing from market participants that in some cases, there may be banks that could be approaching the exposure levels they're comfortable with when it comes to certain data center projects,"

said Dhaval Shah, a director at S&P Global Infrastructure Ratings. The current unprecedented data center development cycle has been dominated by just a handful of leading players, testing whether lenders and investors will remain willing to continue accruing heavy exposure to borrowers like Oracle.

Oracle declined to comment on the matter. However, the company's credit rating sits below some of its peers in the AI race, including Microsoft and Google, making investors more cautious about extending additional capital.

Financial markets have already begun pricing in elevated risk. In November, credit default swaps that insure against losses on Oracle's corporate debt rose in cost, reflecting concerns around the company's enormous spending on AI infrastructure.

S&P Global Ratings affirmed Oracle's rating at BBB in September but explicitly stated it was considering a downgrade due to the company's planned spending on AI infrastructure. A downgrade below BBB minus would place a junk rating on Oracle debt, raising its borrowing costs significantly.

The revenue fundamentals also present a challenge. OpenAI, the AI chatbot maker that will anchor the Stargate facilities, produces revenue that is just a fraction of the tens of billions of dollars annually that would be necessary to justify the infrastructure costs.

"Oracle has become a proxy for OpenAI's ability to raise significant amounts of capital. It's a very precarious position,"

said Gil Luria, an analyst at DA Davidson. Luria expressed surprise that the loans were even underwritten initially, noting that "the market has indicated this is not investment-grade debt."

Despite the challenges, there are potential scenarios that could stabilize the situation. OpenAI is reportedly trying to raise as much as $100 billion in equity funding, which could provide a significant cushion for the Stargate venture.

Luria suggested that such an equity injection would make the associated debt easier to sell to investors. "If that happens, everybody's dreams come true," he said, referring to the improved risk profile and market appetite that would follow.

However, other bankers acknowledge that the pool of investors who still have an appetite for Stargate debt has shrunk. The fundamental question remains whether the market has enough "digestive capacity" to absorb all the debt that will be required for the project's completion.

The slowdown does not necessarily indicate acute trouble in the syndication market, according to some bankers familiar with the situation. The two Texas and Wisconsin projects are fully financed, and the syndication effort by JPMorgan was successful overall. The slowdown in new participants hasn't alarmed bankers given that it was at the tail end of such a large debt offering.

The Stargate project stands at a critical juncture. While the initial financing phases have been completed, the long-term viability depends on maintaining investor confidence through the remaining construction and operational phases.

The project's success will ultimately hinge on OpenAI's ability to generate substantial revenue to justify the massive infrastructure investment. Current revenue levels are insufficient, making the upcoming equity fundraising round particularly important for the venture's future.

For Oracle, the Stargate initiative represents both opportunity and risk. The project could solidify its position as a leading AI infrastructure provider, but the enormous capital requirements have already triggered credit concerns and elevated borrowing costs.

The coming months will reveal whether Wall Street's appetite for AI infrastructure debt can match the scale of ambition demonstrated by the Stargate venture, or if the project will need to adjust its timeline and financing strategy to align with market realities.