Oracle appears to be close to finalizing approximately $16 billion in financing for a new data center in the U.S. state of Michigan, shortly after the company announced a major round of layoffs.
This brings an end to a long and arduous process in which investors, banks, and local authorities repeatedly stood in each other’s way, Bloomberg reports.
The project is being developed by Related Digital and is intended to provide Oracle with additional capacity to run heavy AI applications, including services for OpenAI. The scale of the financing underscores how rapidly demand for computing power for artificial intelligence is growing, but also shows that financing such infrastructure is becoming increasingly complex.
The financing is expected to consist of a combination of equity and debt. Investment firm Blackstone is reportedly contributing approximately $2 billion, significantly less than previously considered. The remainder will come from substantial debt financing led by Bank of America. While a traditional construction loan was initially considered, it now appears that part of the funding will be raised through bonds.
The structure surrounding the data center illustrates how Oracle finances its growth. The company will lease the facility once it is completed, with future rental income serving as collateral for the lenders. This keeps the debt off Oracle’s own balance sheet, though investors are increasingly scrutinizing such structures.
Doubts about scale and power demand
The negotiations were not without obstacles. Local officials in Saline Township initially rejected the project due to concerns about energy consumption and the impact on the environment. The planned data center was projected to have an electricity demand greater than that of some power plants. Only after an agreement was reached on the zoning of the area did the talks gain momentum again.
There was also hesitation from the financial sector. Lenders raised questions about Oracle’s lease terms and sought greater assurance that payments would continue even if the data center were not fully utilized. At the same time, financing costs have risen, indicating that banks perceive greater risk in these types of projects.
The timing of the deal coincides with a period in which Oracle is investing heavily in AI infrastructure. It is rapidly building new capacity, but this is coming at the expense of cash flow. The company is currently operating with negative free cash flow and is trying to reduce costs.
Oracle Cuts Workforce Due to AI Investments
Oracle carried out a large-scale round of layoffs on Tuesday. Dozens of employees shared their experiences on LinkedIn, stating that the layoffs were not related to individual performance. Estimates put the number of affected employees at around 10,000. According to the company, the cuts are linked to heavy investments in AI, which will put significant pressure on the cost structure in the coming years.
Dependence on OpenAI plays a significant role in this. The developer of ChatGPT is growing rapidly. However, the company consumes a lot of capital and is not yet profitable. Credit rating agencies expect Oracle to remain under pressure in the coming years. This is due to the high investments required to meet the demand for AI services.
For banks, Oracle’s strong growth in this segment means their exposure to the company is increasing. Some institutions are now trying to sell off portions of their loans to spread risk. This suggests that while the market believes in the future of AI, it remains cautious about the financial fundamentals behind the rapid expansion.