$38 Billion Bond Issuance! Oracle Data Center Launches Financing, AI Accelerates Into the "Leverage Era"

A bond issuance worth as much as $38 billion is about to hit the market to finance data center projects related to Oracle, marking the official shift of AI infrastructure construction from an internal cash game among tech giants to a capital race driven by leverage. According to Bloomberg, JPMorgan Chase and Mitsubishi UFJ Financial Group are leading a consortium of banks, preparing to launch this massive debt issuance for Oracle-related data center projects as early as Monday. This will be the largest AI infrastructure financing transaction in the market to date. The funding will support two projects developed by Vantage Data Centers. These two data centers will ultimately be used by Oracle to support OpenAI’s computing power needs and are part of the $500 billion Stargate AI infrastructure plan jointly advanced by Oracle and OpenAI. The scale of this deal surpasses the previous $29 billion debt and equity financing Meta Platforms raised for the expansion of its Louisiana data center. As tech giants pour hundreds of billions into data center construction to get ahead in the AI era, the huge capital expenditures are increasingly driving them to the debt markets. Huge Debt Financing Details According to Bloomberg and sources familiar with the matter, the record-setting $38 billion debt financing package is led by JPMorgan Chase and Mitsubishi UFJ Financial Group. The structure of the transaction clearly points to two specific projects: a $23.25 billion loan for the Texas data center and a $14.75 billion loan for the Wisconsin project. Both projects are being developed by Vantage Data Centers. Technically, both credit facilities are expected to have four-year terms, with two one-year extension options. In terms of pricing, their interest rates are expected to be about 2.5 percentage points above the benchmark rate. The loan structure borrows common practices from project and commercial real estate financing: during construction, only interest will be paid, and after the project becomes operational, principal will be repaid in installments. In addition to the lead banks, institutions such as Wells Fargo, BNP Paribas, Goldman Sachs, Sumitomo Mitsui Banking Corporation, and Société Générale have also been allocated shares in the first underwriting round. Earlier this week, the deal managers completed the second round of underwriting, further distributing the debt to other banks and institutional investors. The AI Capital Game: From Cash King to Debt Race Oracle is changing the AI infrastructure financing model. Previously, tech giants like Amazon, Microsoft, and Google mainly relied on their own cash flow to fund data center construction. But Oracle is willing to take on hundreds of billions in leverage to seize market share, forcing other giants to follow suit. OpenAI previously committed to paying Oracle $60 billion a year for yet-to-be-built cloud computing facilities, boosting Oracle’s stock price by 25%. At the same time, the company’s debt-to-equity ratio soared to 500%, far exceeding Amazon’s 50%, Microsoft’s 30%, and the levels at Meta and Google. Michael Cembalest of JPMorgan points out that Oracle simply cannot fund this annual spending with its cash flow and must rely on equity or debt financing. This model is turning the AI industry’s cash flow-driven competition into a debt-driven arms race. Trillion-Dollar Funding Gap to Fill Behind this debt-driven expansion is the staggering funding gap required for AI development and the systemic risks that come with it. As previously mentioned by Wallstreetcn, Morgan Stanley predicts that by 2028, global total investment in AI data centers and chips will reach $2.9 trillion. Of this, cash-rich tech giants are expected to handle about $1.4 trillion, but a massive $1.2 trillion gap will remain to be filled, which is expected to be mainly financed through debt. However, there are growing concerns in the market about whether such massive investments can yield corresponding returns. Bain & Company’s research points out that the $500 billion capital investment needed annually for data center construction would require $2 trillion in annual revenue to generate returns. Even if companies redirected all IT budgets to the cloud and used all AI-driven cost savings for reinvestment, there may still be a huge revenue gap. Analysts warn that if market sentiment shifts—such as suddenly demanding real returns on AI investments or the emergence of disruptive new technologies—the bursting of the AI credit bubble could have more serious economic consequences than a stock market crash. Once these enormous debts, backed by future cash flows, default, the shockwaves will spread throughout the financial system and the entire economy, posing significant systemic risk. Risk Disclaimer The market is risky; investment needs caution. This article does not constitute personal investment advice, nor does it take into account the unique investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions herein fit their specific circumstances. Investing accordingly is at your own risk.