Oracle Stock Dips 4.7% as Blue Owl Pulls $10B Michigan Data Center Funding

Oracle shares plunged nearly 5% on Wednesday after reports revealed that Blue Owl Capital, a key partner in the company's data center expansion, had opted not to fund a $10 billion facility in Michigan. The Financial Times reported that negotiations between Oracle, Blue Owl, and potential lenders had collapsed due to concerns over Oracle's growing debt and aggressive AI infrastructure spending. Oracle quickly denied the report, stating that its development partner, Related Digital, had selected an alternative equity partner and that the project remained "on schedule" according to Barrons.

The Michigan data center, a 1-gigawatt facility intended to serve AI customer OpenAI, represents part of Oracle's broader strategy to compete with larger cloud providers. Blue Owl has historically been the primary financier of Oracle's U.S. data centers, including a $15 billion site in Texas and an $18 billion project in New Mexico as per CNBC. Without Blue Owl's support, Oracle is now searching for a replacement partner, with Blackstone reportedly in early talks to step in.

Oracle's stock has been under pressure for months as investors weigh the risks of its AI-driven capital spending. The company has taken on massive debt, including $18 billion in new bonds in September, bringing its total net debt to over $105 billion. Lease commitments for data centers have also surged, reaching $248 billion as of November - a 148% increase from August alone. These figures have raised concerns about Oracle's ability to maintain an investment-grade balance sheet while funding its infrastructure ambitions.

Why the Standoff Happened

Sources familiar with the talks indicated that Blue Owl's decision to walk away was driven by Oracle's financial exposure. The company's debt-to-equity ratio stands at 432.51%, and its levered free cash flow turned negative by $10.21 billion in the trailing 12 months. Additionally, Oracle's $300 billion partnership with OpenAI - a company without the capital to pay such a large sum - has drawn skepticism about the long-term viability of the deal as reported by Seeking Alpha. Blue Owl, known for its alternative investment strategies, likely calculated the risks outweighed the potential returns.

Oracle's management has repeatedly emphasized its commitment to maintaining an investment-grade balance sheet, but analysts remain wary. Goldman Sachs recently cut its price target for Oracle from $320 to $220 while keeping a neutral rating according to CNBC. The average analyst price target stands at $291.11, with a wide range from $175.14 to $400.00. The uncertainty has caused Oracle's stock to drop more than 40% from its September peak and over 6% in December alone.

How Markets Reacted

Oracle's stock opened at $183.31 and fell to a session low of $179.82 before closing at $179.71, a 4.74% decline from the previous session close. The drop came despite Oracle's statement insisting that the Michigan project was moving forward. Trading volume was lower than average, with 12.9 million shares changing hands, compared to a 30-day average of 26.1 million. The stock's underperformance has also extended to the bond market, with Oracle's debt yields rising in response to the heightened risk profile.

The broader market has been watching closely as Oracle's struggles highlight the challenges of scaling AI infrastructure. Bloomberg reported that Oracle is at the center of a $500 billion industry-wide leasing boom as cloud providers vie for dominance in AI-driven data centers. While competitors like Microsoft and Meta are also investing heavily, Oracle's smaller cloud business and heavy reliance on a single customer - OpenAI - make it a unique case. Analysts have questioned whether Oracle can sustain its pace of investment without compromising financial flexibility.

What Analysts Are Watching

Investors and analysts are now closely monitoring Oracle's ability to secure alternative financing for the Michigan project. If Blackstone or another firm steps in, it could signal continued confidence in Oracle's AI vision. However, the terms of any new deal could also reflect higher borrowing costs, given the company's deteriorating credit metrics. Oracle's management will likely face renewed scrutiny during its next earnings call, particularly regarding its capital allocation strategy and debt management.

Another key focus is the broader AI leasing market, which has grown rapidly but remains untested under economic stress. Oracle's experience may serve as a cautionary tale for other companies relying on long-term financing and off-balance sheet structures according to Bloomberg. As AI infrastructure spending continues to rise, the ability to balance growth with financial prudence will become a critical factor for investor sentiment.

Oracle's stock has already fallen nearly 46% from its high this year, and the recent Blue Owl pullback could further erode confidence. Whether the company can navigate these challenges will depend on its ability to secure funding, maintain its AI partnerships, and convince investors that its aggressive bets are justified.