Oracle(US:ORCL) Hua Er Jie Jian Wen·2025-10-24 00:32Core Insights - A record $38 billion bond issuance is set to finance Oracle-related data center projects, marking a shift in AI infrastructure funding from internal cash reserves to a debt-driven capital race [1] - The financing will support two projects developed by Vantage Data Centers, which are part of Oracle's $500 billion AI infrastructure investment plan, Stargate, aimed at meeting OpenAI's computing needs [1][2] - This transaction surpasses Meta Platforms' previous $29 billion debt and equity financing for a Louisiana data center expansion, highlighting the increasing reliance on debt markets by tech giants amid significant capital expenditures [1] Financing Details - The $38 billion debt financing is led by JPMorgan and MUFG, with $23.25 billion allocated for a Texas data center and $14.75 billion for a Wisconsin project [2] - The loans are expected to have a four-year term with two one-year extension options, and the interest rate is projected to be about 2.5 percentage points above the benchmark rate [2] - The financing structure follows common practices in project and commercial real estate financing, with interest-only payments during the construction phase and principal repayments starting once the projects are operational [2] AI Capital Dynamics - Oracle is changing the financing model for AI infrastructure, moving away from cash flow reliance to leveraging significant debt to capture market share, pressuring other tech giants to follow suit [3] - OpenAI's commitment to pay Oracle $60 billion annually for yet-to-be-built cloud facilities has driven Oracle's stock up by 25%, but also increased its debt-to-equity ratio to 500%, significantly higher than competitors like Amazon and Microsoft [3] - Analysts indicate that Oracle cannot cover its annual expenses through cash flow alone, necessitating equity or debt financing, thus transforming the AI sector's funding competition into a debt-driven arms race [3] Funding Gap - The expansion driven by debt is fueled by a staggering funding gap required for AI development, with Morgan Stanley predicting global investments in AI data centers and chips could reach $2.9 trillion by 2028 [4] - Tech giants are expected to cover about $1.4 trillion of this investment, leaving a $1.2 trillion gap that will likely be filled through debt financing [4] Market Concerns - There are growing concerns about whether such massive investments will yield adequate returns, with Bain & Company estimating that $500 billion in annual capital investment for data centers would need to generate $2 trillion in annual revenue for profitability [5] - Analysts warn that if market conditions shift, demanding actual returns from AI investments or introducing disruptive technologies, the potential for an AI credit bubble to burst could have severe economic repercussions [5]