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U.S. tech giant Oracle’s decision to invoke force majeure over a major New Mexico data center is forcing investors to reassess the contracts and financing structures supporting the rapid expansion of AI infrastructure, global investment bank Morgan Stanley warned.
Oracle issued the notice to a Blue Owl unit developing the facility, citing potential delays in securing power for the project, Reuters reported on Thursday. Following the report, Oracle shares ended the week down more than 7%.
In a note on Friday, the bank said the development added fresh uncertainty to an AI infrastructure debt market already facing rising borrowing costs, increased bond supply that is putting pressure on risk premiums, and growing opposition to data center projects across many parts of the United States.
Projects with substantial construction or completion risks, particularly those backed by weaker-credit tenants, were likely to be most exposed, while those nearing stable operations were expected to see more limited effects.
Morgan Stanley analysts pointed out that Oracle’s notice quickly rippled through credit markets, widening spreads on data-center-related bonds and pushing the cost of five-year credit default swaps (CDS) on Oracle debt to an all-time high.
Data center financing largely relies on long-term leases with highly rated technology companies, whose stable cash flows underpin debt repayment. Investors are now scrutinizing how much protection those contracts provide when tenants seek to limit delay-related costs, according to the bank.
The key question is whether Oracle’s action remains an isolated dispute or sets a precedent. A similar move by another highly rated cloud company could have broader market implications, the bank warned.
Oracle also acted well ahead of the facility’s scheduled delivery, which Morgan Stanley called an "escalation." The bank raised the possibility that Oracle could take a tougher stance on data center leases and computing-power contracts if demand weakened.
Limited visibility into private lease and financing contracts adds to the uncertainty, as many AI infrastructure projects rely on bank loans and private equity rather than public bonds.
Still, Morgan Stanley did not view the move as an attempt to evade debt obligations. It remained cautious about Oracle’s credit profile because of its cash burn, relatively high adjusted leverage and rating risks.
Oracle cannot terminate the lease under any circumstances, the Reuters report suggested. Blue Owl has about $3 billion in equity in the project, while Oracle is responsible for the debt costs.
Rather than exiting as the main tenant, Oracle is seeking to delay payments if Project Jupiter is derailed and fails to come online in 2028 as planned, according to Bloomberg News.
The company earlier said that Project Jupiter remains on its planned schedule, while Blue Owl said the notice does not change the financial commitments to the multiyear project.
Blue Owl earns a 9% yield on its equity during development, with the levered yield expected to reach around 11% upon completion. The force majeure provision would extend the lower development-stage rent period, delaying the start of the higher rent period.
The 1,400-acre Project Jupiter campus has secured $18 billion in loans from a consortium of banks, according to media reports, and is part of Oracle’s broader agreement with OpenAI to provide AI computing capacity.
The project has also faced delays involving a planned natural-gas pipeline and legal challenges over water and air-quality permits.
Jupiter is part of Stargate, an initiative to build AI infrastructure in the United States under a $500 billion investment commitment involving OpenAI, SoftBank Group and partners including Oracle.
The wider AI infrastructure buildout is facing challenges securing power and other resources while developers manage the high costs of expanding computing capacity. Data centers are also facing growing public opposition over their use of energy, water and other natural resources.
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