Oracle-Linked Data Center Loan Deal Is a Test for AI Debt Market

A loan deal linked to Oracle’s effort to build up its data-center capacity arrives at a tricky time for credit markets. (Dreamstime)

Key Points

• Vantage Data Centers reportedly plans to launch $38 billion in debt offerings next week to fund data centers for Oracle and OpenAI’s Stargate project.
• The AI industry requires an estimated $7 trillion in capital over the next decade for infrastructure, with significant recent fundraising efforts.
• Oracle’s future capital spending, projected at $206 billion over seven years, is heavily reliant on OpenAI’s ability to raise funds.

A data-center group that is closely linked to Oracle and OpenAI’s Stargate effort could test the market’s willingness to provide the trillions needed to deliver artificial intelligence over the coming decade. It could add to concern among investors that key players in the new technology are dangerously overvalued.

Bloomberg reported late Thursday that Vantage Data Centers will launch two separate debt offerings next week, valued at a record $38 billion, to fund data-center projects in Texas and Wisconsin. Both will be leased to Oracle, which will then provide cloud and AI infrastructure capacity to OpenAI as part of the pair’s involvement in the $500 billion U.S. government-backed Stargate project.

Vantage didn’t immediately respond to a request for comment.

The sale comes at a tricky time for credit markets, which have wobbled as a result of a bankruptcies in the subprime auto-loan sector, as well as worrying pressures in overnight bank funding. The shrinking of the Federal Reserve’s $6 trillion balance sheet has left funds parked in its overnight repo facility, a source of cash for very short-term loans, at the lowest level since 2o21.

Demand for the paper could prove crucial to support the AI spending boom that has powered the bulk of gains in both U.S. equity markets and the domestic economy this year.

Hadley Peer Marshal, CEO at Brookfield Asset Management, told Bloomberg last month that around $7 trillion in capital will be needed over the next decade to build the factories, computing infrastructure and power capacity needed to meet the expected AI demand.

So far, however, investors have been eager to support the effort. Meta Platforms recently raised around $29 billion for a data-center expansion project in Louisiana, tapping the private-credit markets for the bulk of the money.

Oracle raised $18 billion in a multipart bond issue in October that included paper maturing in 2065. Reports suggested investor demand for the sale, the second-largest corporate bond offering of the year, reached $88 billion.

The Vantage deal will hit the market in the same week that five of the so-called Magnificent Seven tech stocks will update investors on their September quarter earnings. Each will also likely map out capital spending and AI infrastructure plans for the coming year. Late last month, Citigroup boosted its forecast for what the companies will spend in 2026 to around $490 billion.

Megacap tech companies such as Meta, Microsoft, and Apple will have little difficulty in either funding their spending plans with current cash flows or, if needed, selectively tapping bond markets for added funds.

Companies such as Oracle, however, which is expected to have negative cash flow of around $16 billion this year, and OpenAI, which is only generating modest amounts of revenue, may have more limited options.

Goldman Sachs analysts see OpenAI raising around $75 billion in either debt or equity sales next year as it looks to meet the financial obligations of its recent flurry of computing-capacity deals with Oracle, Nvidia , Broadcom, and Advanced Micro Devices.

Oracle updated investors last week on its broader revenue projections. It forecast a compound annual growth rate of more than 30% and a top line of $225 billion by the end of the decade.

But it didn’t offer any guidance on capital spending beyond the $35 billion tally expected in its current financial year. That represented a 65% increase from 2024 levels.

Bank of America projections, however, put its cumulative capital spending needs at $206 billion over the next seven years, compared with overall revenue of around $317 billion.

Oracle’s projected revenue, however, is closely linked to the fortunes of OpenAI. The pair signed a $300 billion cloud-computing deal last month, according to the Wall Street Journal.

That likely represents around 65% of Oracle’s $455 billion “remaining performance obligations” backlog, which helped propel the stock to record highs in late September.

That implies that Oracle’s ability to fund its capital-spending plans with cash will be tied to OpenAI’s success in raising money through debt markets over the coming year and beyond.  It signals that next week’s Vantage Data Center deal could be nearly as important to the AI investment story as the megacap tech earnings.

Write to Martin Baccardax at martin.baccardax@barrons.com