Oracle (ORCL) stock fell more than 5% Wednesday after the Financial Times reported that private lender Blue Owl Capital (OWL) will not back a $10 billion deal for its next data center as the software company draws investor scrutiny over its use of debt to fund spending on AI computing capacity.
Blue Owl, Oracle’s biggest data center partner, had been in discussions with lenders and Oracle for the deal to invest in a massive facility in Michigan, but negotiations stalled, according to the FT.
The report raised questions over how the project will be funded. Oracle spokesperson Michael Egbert said in a statement to Yahoo Finance that its development partner, Related Digital, “selected the best equity partner from a competitive group of options, which in this instance was not Blue Owl.”
Read more about Oracle’s stock moves and today’s market action.
Blue Owl has been a prominent player in the AI data center boom, partnering with Oracle on its data center projects in Texas and New Mexico, as well as inking a deal with Meta (META) to help finance its mammoth facility in Louisiana.
Such arrangements — in which debt is tied to joint ventures or special purpose vehicles and not included in companies’ balance sheets — in addition to massive corporate bond issuances by major tech firms this year, have raised concerns about how companies are funding their AI build-outs. Oracle in particular faces greater scrutiny as it lacks the strong internal cash flow that its Big Tech cloud peers boast, according to analysts.
The decline of Oracle stock on Wednesday means shares are down nearly 18% for the month. The stock fell after the company’s earnings last week showed its costs rising more than expected while the company bled more cash than investors anticipated. The tech firm’s $248 billion in lease obligations, revealed in its quarterly SEC filing, added to investor fears over its growing debt pile. Its overreliance on OpenAI to meet its ambitious revenue targets has also sent shareholders backpedaling.
Although Oracle execs said after its earnings results that the company is committed to maintaining an investment-grade credit rating — it currently has a BBB rating on its bonds — investors haven’t been so sure, piling into Oracle credit default swaps that saw spreads reach their highest level last week since 2009.
Click here for the latest technology news that will impact the stock market
Read the latest financial and business news from Yahoo Finance