Oracle's force majeure notice exposes the weak link in AI data centre finance
Oracle has served a force majeure notice on the developer of its New Mexico Stargate campus. It says nothing has changed, but lenders, landlords and investors are repricing the risk in AI leases.
Oracle has sent a force majeure notice to the developer of Project Jupiter, the vast Stargate data centre campus under construction in Doña Ana County, New Mexico. Bloomberg reported the move on Thursday, September 24, citing people familiar with the matter. The recipient is a unit of Blue Owl Capital. Oracle is not trying to walk away from its role as the main tenant. Instead, according to those people, it is preserving the right to put off rent payments if the campus fails to come online in 2028 as planned.
Both companies played the notice down. Oracle said such notices are common in developments of this size, are used to preserve contractual rights and do not in themselves establish a delay. It told CNBC that the project remains on schedule. Blue Owl said the notice does not change the financial commitments to the project and that the parties remain fully aligned. Markets were less relaxed. Oracle's shares fell more than 6% after the open and were still down 4.4% around midday in New York, taking the year-to-date decline to 29%. Blue Owl lost 3.7%, and a gauge of Oracle's credit risk reached a record.
What the notice would actually do
Force majeure clauses excuse a party from obligations when events outside its control intervene. In this case the mechanism appears specific. According to Bloomberg, if both sides agree that a force majeure event tied to power commitments has occurred, Oracle could win a three-year delay on rent from the date payments would otherwise begin. It would still have to cover other costs in the meantime and would owe rent for the full lease term once payments start. In other words, the notice is about timing and cash flow, not about cancelling the lease.
That distinction matters, but it is not reassuring for everyone. A tenant that can defer rent for three years shifts the burden of any delay onto the developer and its lenders. About 20 banks provided an $18bn loan to fund construction. Bloomberg reported that debt tied to the project was already trading below 90 cents on the dollar, a stressed level, and that the notice does not constitute an event of default under the financing.
Why Jupiter is in trouble
The campus is designed to handle 2.45 gigawatts, and its energy plan is its weak point. The site is meant to run on gas-powered fuel cells from Bloom Energy, which makes a reliable gas supply essential. An Energy Transfer pipeline intended to deliver that gas has been delayed by nearly six months, to February 1, 2027, after state permit denials, and its route was changed in August. A separate air-quality permit for the fuel cell system is still pending, with the state environment department facing a November 23 deadline to decide.
Politics adds to the uncertainty. Project Jupiter is one of the flagship sites of Stargate, the AI infrastructure initiative that Oracle, OpenAI and SoftBank announced with President Donald Trump. Doña Ana County's fact sheet cites a minimum initial investment of $50bn and potential investment of $165bn over 30 years. The campus has drawn opposition from residents and environmental groups and survived legal challenges that reached the state's Supreme Court. It has become a political issue ahead of the midterm elections, and Oracle has responded with a public outreach campaign in the state.
Oracle's balance sheet is the real story
The reaction in Oracle's shares and credit reflects more than one site in New Mexico. Oracle has turned itself into one of the most aggressive builders of AI capacity, and its numbers show both the scale of demand and the strain of meeting it. Its fiscal first-quarter results, published on September 10, showed revenue up 30% to $19.3bn and cloud infrastructure revenue up 121% to $7.4bn. Remaining performance obligations, the contracted revenue not yet recognised, rose by $209bn from a year earlier to $664bn after Oracle booked more than $30bn of new AI cloud contracts.
Delivering on that backlog is expensive. Operating cash flow reached $23bn in the quarter, but free cash flow was negative $5bn, and Oracle sold $20bn of common stock through an at-the-market programme during the period. The company delivered more than 300,000 graphics processors to AI customers and 850 megawatts of additional capacity. Each of those numbers depends on campuses like Jupiter being built on time. When one of them slips, the question for investors is not whether demand exists but whether the financing chain from bank to developer to tenant can absorb the delay.
A template for other leases
The episode will raise questions about the resilience of data centre leases more generally. Many AI campuses are financed on the strength of long leases signed by a single large tenant, with construction loans sized against that rent. Contracts often include clauses that allow a customer to back out or defer if service does not begin on time. Until now, investors have tended to treat a lease from a large technology company as close to a bond. Oracle's notice shows that it is a commercial contract with exits and options, and that tenants will use them.
Our view
Oracle is probably right that the notice is a precaution rather than a retreat, and it would be a mistake to read it as a sign that AI demand is fading. The backlog says otherwise. But precautions reveal priorities. When the tenant moves first to protect its cash flow, the developer and the lenders discover where the risk in the structure really sits.
For investors in data centre developers, private credit funds and the start-ups that depend on cheap capacity, the lesson is to stop treating hyperscale leases as risk-free. Power, permits and politics now determine delivery dates, and delivery dates determine who pays. Watch the November air-quality decision in New Mexico, the trading level of the project debt, and whether other tenants begin serving similar notices on delayed sites. Oracle's own funding needs also deserve attention: a company with negative free cash flow and heavy equity issuance has less room to absorb delays than its backlog suggests.
Sources
- Bloomberg Law (Bloomberg News): Oracle cites force majeure to shield itself on data center
- TechCrunch: Oracle sends force majeure notice on its New Mexico Stargate data center
- Forbes Australia: Oracle stock slides after company issued force majeure notice for major data center project
- DCD: Oracle issues force majeure notice to Blue Owl following series of setbacks at Project Jupiter data center campus
- Free Press Journal: Oracle invokes force majeure on massive New Mexico AI data center project
- Oracle: Oracle announces fiscal year 2027 first quarter financial results
Filed under Big Tech. Written by Invest Times Editorial under our editorial standards. Commentary and analysis for information only, not investment advice.
