Oracle set out last year to lease a massive AI data-center campus being built in New Mexico's Doña Ana County, part of a blitz of deals to create computing power for OpenAI.
The company made aggressive financial commitments for the facility in contracts that allow it little wiggle room. Now, "Project Jupiter" is mired in challenges over power supply and permitting and is fast becoming a prime example of the risks in the tech giant's sprawling and expensive artificial-intelligence gambit.
Oracle signed a lease for the New Mexico facility with so-called hell-or-high-water terms, meaning the deal can't be terminated and Oracle is obligated to make rent payments regardless of whether it has secured the power to operate the data centers, according to people with knowledge of the deal.
The company overhauled its original power plans to address local resistance to its idea to use gas turbines and diesel generators, but it has yet to obtain the air permits it needs from the state. It is also facing roadblocks because a small portion of a proposed 17-mile natural-gas pipeline would pass through state land, and it has been rejected twice.
And in recent months, Oracle booted one of its key land and power partners from the development, according to people familiar with the matter.
Earlier this week, Oracle delivered a force majeure notice to Stack Infrastructure-the site's developer, which is owned by investment firm Blue Owl Capital funds-that it would push back the date at which it will pay full rent. The lease gives Oracle the right to do that for up to three years. Project Jupiter's first phase was originally expected to be completed in the third quarter of 2028.
Oracle said that force majeure notices are commonplace in projects like the one in New Mexico and don't necessarily mean there is a delay or change in expectations.
"Project Jupiter remains on our planned schedule," a spokesman said in an email. "We are fully committed to New Mexico and confident in our path forward."
"Blue Owl, Stack Infrastructure and Oracle remain fully aligned on Project Jupiter," a Blue Owl spokesman said in an email. "This notice does not change the financial commitments to this multiyear project."
Oracle's stock fell as much as 8% in morning trading before bouncing back slightly, ending the day down 4%. Blue Owl stock declined about 3.6%
Around a year ago, OpenAI signed a contract with Oracle to buy $300 billion in cloud-computing services over the following five years. Oracle didn't yet have the data-center footprint to deliver that kind of capacity, so it quickly signed leases to occupy new mega-facilities that would be developed in Texas, Wisconsin, Michigan and New Mexico, representing around 4.5 gigawatts of computing capacity.
Banks signed on to provide tens of billions of dollars in loans to build the facilities, which were branded as being part of OpenAI's Stargate initiative. For the New Mexico campus, a group of about 20 banks provided $18 billion in construction financing. Blue Owl contributed about $3 billion of equity.
Pulling the force majeure lever buys Oracle some time but doesn't reduce its financial exposure to the data center. Oracle can defer payments until the power comes on, but that triggers an automatic extension of the duration of its lease, meaning that the ultimate amount it pays to Stack wouldn't decline.
For now, Stack is earning the equivalent of a 9% annualized return for Blue Owl that comes out of the money raised to build the project, people familiar with the project said. The financing package set aside funds for up to three years of potential delays before lease payments begin, at which point the developer's forecast return jumps to 11%.
Lenders are showing signs of unease about their exposure to Oracle. At least one bank that arranged New Mexico loans sold off a portion of the debt for a price below 90 cents on the dollar, people familiar with the matter said. Earlier this year, banks struggled to sell billions of dollars of loans they made to build data centers leased to Oracle in Texas and Wisconsin, The Wall Street Journal previously reported.
The sales of the New Mexico construction loans implies a paper loss of at least $1.8 billion for original lenders. Most banks hold construction loans they make until their due dates and don't adjust their valuations based on market fluctuations.
The Financial Times earlier reported the bank debt sale.
Bond investors have also raised questions about Oracle's financial stability and its investment-grade credit rating. S&P Global Ratings downgraded Oracle's credit rating to one notch above "junk" territory in July, saying that its "rapidly expanding AI infrastructure business is increasing its overall credit risk." Its capital spending on AI equipment and property has exceeded its cash flows from operating its business for several quarters.
Amid the New Mexico issues, Oracle removed a partner on the Project Jupiter site, BorderPlex Digital Assets, according to people familiar with the matter. The firm, which started working on the project in late 2024, had early support from Gov. Michelle Lujan Grisham.
BorderPlex is set to receive a payment from Oracle to relinquish the rights BorderPlex held to the project's land and power, some of the people said.
Earlier this year, in response to community pushback, Oracle and BorderPlex announced a plan to use Bloom Energy fuel cells to power Project Jupiter, replacing an earlier plan involving gas turbines and diesel generators.
Comments