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Oracle lost a major financing partner for its Michigan data center, adding pressure to an already difficult week for the stock.
The market is pricing Oracle bonds as riskier than its official credit ratings suggest.
Shares of Oracle (NYSE: ORCL) are down 5.1% as of 2:31 p.m. ET today. The drop comes as the S&P 500 and Nasdaq Composite lost 1% and 1.5%, respectively.
Oracle has reportedly failed to secure financing from Blue Owl Capital to fund the construction of a new data center, extending a multi-day sell-off following last week's earnings.
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Oracle will now have to look elsewhere to find the $10 billion it needs to fund the construction of a new data center in Michigan. Blue Owl has been a major partner in financing Oracle's artificial intelligence (AI) ambitions thus far, making the missed deal all the more concerning to investors, as it adds to the narrative that Oracle is a credit risk.
Image source: Getty Images.
Oracle may now have a hard time securing financing from others -- at least on favorable terms -- given Blue Owl walked away from the deal. The company's bonds, despite retaining their investment-grade ratings, are trading at levels comparable to junk bonds. Credit default swaps (essentially insurance against a company defaulting on its debt) have reached highs not seen for Oracle since the great financial crisis.
Oracle is highly leveraged, relying on expensive debt to fund its rapid buildout of AI data centers. It's an extremely risky play that requires AI demand to continue growing at a lightning pace. I would not own the stock.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.
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