This move could help Oracle complete its data center construction faster and meet the computing power demands of clients like OpenAI.
Oracle is grappling with a thorny problem: the company has committed to building large-scale chip-powered data centers for OpenAI but lacks sufficient cash flow to bring this project to fruition. To date, Oracle has managed to cover the upfront costs for the physical infrastructure of the data centers. However, the next critical step requires purchasing massive quantities of Nvidia chips to support OpenAI's large model training and the commercial computing power for ChatGPT. These chips represent the highest-cost, most essential component for building computational data centers. If Oracle fails to secure funding promptly to complete these purchases, it risks missing the optimal window for server acquisition and could ultimately lose the associated business contracts. In response to Oracle's funding dilemma, the anticipated solution lies in the asset-backed securities market: Oracle is highly likely to pioneer a new financing model, issuing bonds collateralized by its own chip assets to raise capital, then using the proceeds to purchase even more chips. Compared to the conventional public offering of $18 billion in bonds in September this year, this chip-backed bond financing solution could help Oracle secure lower financing rates while achieving a larger fundraising scale. Oracle could design differentiated bond products based on the risk profiles of its cloud service clients: bonds backed by Nvidia chip purchase orders could offer lower yields, whereas bonds backed by the OpenAI cooperation agreement could carry higher yields. Furthermore, Oracle could establish a special purpose vehicle to hold the chip assets, moving this debt off its corporate balance sheet to maintain its low investment-grade credit rating. The logic of asset-backed securities financing involves a company issuing bonds collateralized by various assets, with the collateral pool ranging from home equity loans to data center lease rights. Issuers bundle these assets together to diversify the risk of any single asset defaulting and then split the cash flows into tranches for sale to investors. Conservative investors can opt for lower-yielding but safer bond tranches, while risk-tolerant investors can assume higher risk in exchange for potentially greater returns. By 2025, the global issuance volume for asset-backed securities had already surpassed $800 billion, with auto loan-backed bonds constituting the largest share. To further enhance the bonds' appeal, Nvidia might commit to repurchasing the chips serving as collateral should Oracle default on its debt—a credit enhancement arrangement commonly seen in other asset-backed financings. Given that Nvidia has already pledged to invest up to $100 billion in OpenAI, providing a buyback guarantee for these bonds to boost GPU chip sales would not be a significant challenge.
Comments