Oracle is encountering significant financial challenges in its ambitious plan to build nearly 1 GW data center campuses, primarily for OpenAI, in locations like Wisconsin. The company projects an annual financing cost exceeding $100 million to secure power commitments for its Lighthouse Campus in Port Washington, Wisconsin, which could necessitate posting financial security, likely a letter of credit, upwards of $7 billion. Local regulators in Wisconsin have resisted revisiting decisions that safeguard existing customers and enhance transparency regarding data center energy needs, further complicating Oracle's efforts.
Wall Street is showing increasing unease with Oracle's substantial debt, estimated to be around $58 billion for OpenAI-linked data center projects, including $38 billion for facilities in Texas and Wisconsin and $20 billion for a New Mexico campus. Banks, including JPMorgan Chase and Bank of America, have struggled to offload the risk of these massive loans, reaching their exposure limits to a single counterparty like Oracle. This has led to difficulties in securing financing for future Oracle projects, exemplified by lenders balking at a data center expansion in Abilene, Texas, if Oracle were the tenant, leading the developer Crusoe to lease it to Microsoft instead.
Analysts like S&P and TD Cowen are highlighting the potential risks for Oracle. S&P forecasts Oracle's capital expenditure guidance to increase to $90 billion-$95 billion for fiscal 2027, up from an earlier $60 billion, and anticipates negative free operating cash flow of $42 billion. TD Cowen notes that Oracle needs to procure about three million GPUs and other IT equipment for its existing agreements, leading to questions from investors about the company's ability to finance these commitments. The cost of protecting Oracle's bonds against default, via credit-default swaps, has notably increased, reflecting growing market skepticism about the financial viability of its extensive AI infrastructure projects, especially given OpenAI's substantial $1.4 trillion in multi-year commitments and its own considerable capital expenditure requirements, estimated by TD Cowen at $156 billion.
