Wall Street is losing its appetite for Oracle's data center debt

• Oracle and OpenAI's have plans to build $500 billion of data centers in a venture called Stargate.
• JPMorgan Chase has seen slower investor interest for $38 billion of debt tied to two Stargate sites.
• The pullback comes amid growing concerns about Oracle's credit rating and risk.

Oracle and OpenAI have aimed to build $500 billion of data centers by the end of the decade to power their artificial intelligence ambitions.

But the massive initiative, called Stargate, may be exhausting the supply of available capital.

JPMorgan Chase, the bank that recently led a pack of lenders to extend roughly $38 billion of debt for the construction of two planned Stargate data center campuses in Texas and Wisconsin, has encountered diminished interest as it has sold off pieces of the loan to other financial players, a person familiar with the situation said.

The person said that the two projects are fully financed, the syndication effort by JPMorgan had been successful overall, and that the slowdown in new participants hadn't alarmed bankers given that it was at the tail end of such a large debt offering.

But the person acknowledged that banks and institutional investors had also grown wary in recent months of taking on too much exposure to Oracle, a tech giant whose credit rating sits below some of its peers in the AI race, including Microsoft and Google.

The reticence among lenders and investors to continue bankrolling Stargate raises questions about whether the mega-project will meet its lofty objectives.

"We are hearing from market participants that in some cases, there may be banks that could be approaching the exposure levels they're comfortable with when it comes to certain data center projects," said Dhaval Shah, a director at S&P Global Infrastructure Ratings.

The current unprecedented data center development cycle has been dominated by just a handful of leading players, testing whether lenders and investors will remain willing to continue to accrue heavy exposure to borrowers like Oracle. Oracle declined to comment.

In November, credit default swaps that insure against losses on Oracle's corporate debt rose in cost, a reflection of the concerns around the company's enormous spending on AI.

OpenAI, the AI chatbot maker that will anchor the Stargate facilities, meanwhile, produces revenue that is just a fraction of the tens of billions of dollars annually that would be necessary to justify the cost of its infrastructure.

"Oracle has become a proxy for OpenAI's ability to raise significant amounts of capital," said Gil Luria, an analyst at DA Davidson. "It's a very precarious position."

How the $500 billion Stargate project is being funded

OpenAI announced Stargate a year ago, stating that it would partner with Oracle and others, to build a total of 10 gigawatts of data center capacity by 2029 — roughly the equivalent power footprint of New York City on a day of peak electrical consumption.

In October, OpenAI announced that it had arranged for the construction of six Stargate sites with a total planned capacity of roughly 7 gigawatts, stating that the pipeline "puts us on a clear path to securing the full $500 billion,10-gigawatt commitment" it had announced at the beginning of 2025.

Much of the financing for the project, so far, has been provided by major financial institutions that have banded together to share its immense costs — as well as its risks — in what are known as syndication deals. JPMorgan Chase and Mitsubishi UFJ Financial Group led the syndication effort for the two Stargate projects in Shackelford, Texas, and Port Washington, Wisconsin. Both banks declined to comment.

Bank of America is leading a syndication to finance another Stargate data center campus in Michigan. A person familiar with that effort said that it has attracted interest from syndication takers.

Another group of lenders provided about $18 billion of financing for another Stargate facility in New Mexico, according to Bloomberg.

Initial players in large syndication deals often seek to sell off portions of their loan commitments to other players, including other banks and institutional investors.

But the sale of these positions, which is done to reap quick profits and lower exposure, has become trickier in the case of Stargate.

Two bankers and a financing executive who are familiar with the syndication market said that the rising perception of risk around Stargate meant that lenders now wanted higher yields to lend to it. That has placed recent Stargate syndicators in a position where they can no longer profitably sell off debt that was arranged at tighter spreads just a few months ago.

Stargate borrowing rates may not come down any time soon.

In September, S&P Global Ratings affirmed Oracle's rating at BBB but said it was considering a cut due to the company's enormous planned spending on AI infrastructure. A downgrade below BBB minus would place a junk rating on Oracle debt, raising its borrowing costs significantly.

"I am very surprised these loans were even underwritten at the time," Luria said. "The market has indicated this is not investment-grade debt."

However, Luria said one scenario in particular could make the loans less risky. OpenAI is now in the process of trying to raise as much as $100 billion, according to reports, giving the Stargate venture a potential cushion of equity and making its debt easier to sell, he said.

"If that happens," he said, "everybody's dreams come true."

Other bankers who spoke with Business Insider said the slowdown did not indicate acute trouble in the syndication market, but acknowledged that the pool of investors who still have an appetite for the Stargate debt has shrunk.

"Do we have enough digestive capacity" in the market for investors to buy all of the debt that will be required, said David Tawil, a partner at transaction insurance advisory firm Castle Harbour. "That's the market's real concern: the size of this whole movement."