Oracle and OpenAI have an ambitious plan to build $500 billion worth of data centers (approximately CZK 13 trillion) by the end of the decade to support their artificial intelligence ambitions. However, this massive project, called Stargate, may be exhausting the capital resources available in the market.
JPMorgan Encounters Declining Investor Interest
JPMorgan Chase, the bank that recently led a group of lenders in providing approximately $38 billion (roughly CZK 1 trillion) in debt to build two planned Stargate data center campuses in Texas and Wisconsin, has seen reduced interest while selling portions of the loan to other financial players. This information was confirmed by a person familiar with the situation.
According to this source, both projects are fully financed, and JPMorgan's syndication efforts have been successful overall. The slowdown in bringing in new participants did not concern the bankers because this was the final phase of such a large debt offering. However, the source acknowledged that banks and institutional investors have become more cautious in recent months about excessive exposure to Oracle, the technology giant whose credit rating is lower than that of some of its rivals in the AI race, including Microsoft and Google.
Concerns About Oracle's Creditworthiness
The reluctance of lenders and investors to continue financing the Stargate project raises questions about whether the megaproject will meet its ambitious goals. "We are hearing from market participants that, in some cases, banks may be reaching exposure levels they are comfortable with when it comes to certain data center projects," said Dhaval Shah, director at S&P Global Infrastructure Ratings.
The current unprecedented cycle of data center development is dominated by just a handful of leading players, testing whether lenders and investors will remain willing to accumulate high levels of exposure to borrowers such as Oracle. Oracle declined to comment.
In November, the cost of credit default swaps that insure against losses on Oracle's corporate debt rose, reflecting concerns surrounding the company's enormous AI spending. Meanwhile, OpenAI, the creator of the AI chatbot that will be hosted at the Stargate facilities, generates revenue that is only a fraction of the tens of billions of dollars annually that would be needed to justify the cost of its infrastructure.
"Oracle has become a proxy for OpenAI's ability to raise significant amounts of capital," said Gil Luria, an analyst at DA Davidson. "It is a very precarious position."
Financing the CZK 13 Trillion Project
OpenAI announced the Stargate project a year ago, saying it would work with Oracle and others to build a total data center capacity of 10 gigawatts by 2029 – roughly equivalent to New York City's energy footprint on a peak electricity demand day.
In October, OpenAI announced that it had secured the construction of six Stargate sites with a total planned capacity of approximately 7 gigawatts, stating that the plan "puts us on a clear path to securing the full $500 billion, 10-gigawatt commitment" it announced in early 2025.
Much of the project's financing has so far been provided by large financial institutions that joined forces to share its enormous costs – as well as its risks – through so-called syndication agreements. JPMorgan Chase and Mitsubishi UFJ Financial Group led the syndication efforts for two Stargate projects in Shackelford, Texas, and Port Washington, Wisconsin. Both banks declined to comment.
Bank of America is leading the syndication to finance another Stargate data center campus in Michigan. A person familiar with the effort said it had attracted interest from syndication participants. Another group of lenders provided approximately $18 billion (about CZK 475 billion) in financing for another Stargate facility in New Mexico, according to Bloomberg.
Growing Risk and Higher Interest Rates
Initial participants in large syndication deals often seek to sell portions of their loan commitments to other players, including other banks and institutional investors. But selling these positions, which is done to generate quick profits and reduce exposure, has become more difficult in Stargate's case.
Two bankers and a finance executive familiar with the syndication market said that the growing perception of risk surrounding Stargate meant lenders now wanted higher returns to lend to it. This has put recent Stargate syndicators in a position where they can no longer profitably sell debt that was arranged several months ago at tighter spreads.
Interest rates on Stargate loans may not fall anytime soon. In September, S&P Global Ratings affirmed Oracle's BBB rating but said it was considering a downgrade because of the company's enormous planned spending on AI infrastructure. A downgrade below BBB minus would give Oracle's debt a speculative-grade rating, significantly increasing its borrowing costs.
"I am very surprised that these loans were underwritten at all at the time," Luria said. "The market indicated that this was not investment-grade debt."
Hope in the Form of New Capital
However, Luria said one particular scenario could make the loans less risky. OpenAI is now seeking to raise as much as $100 billion (approximately CZK 2.6 trillion), according to reports, which would provide the Stargate venture with a potential equity cushion and make it easier to sell its debt. "If that happens," he said, "everyone's dreams will come true."
Other bankers who spoke with Business Insider said the slowdown did not indicate acute distress in the syndication market, but acknowledged that the pool of investors who still have an appetite for Stargate debt has shrunk.
"We have sufficient absorption capacity in the market" for investors to buy all the debt that will be required, said David Tawil, a partner at transaction insurance advisory firm Castle Harbour. "That is the market's real concern: the scale of this entire movement."
Source: businessinsider.com
