Force Majeure No Issue for ORCL? Cory Johnson's Bullish Contrarian Take

Sam Vardis (0:00)

Welcome back to Market on Close. I'm Sam Vardis on the floor of the New York Stock Exchange. Joining me now on the floor is Cory Johnson, Chief Market Strategist from Epistrophe Capital Research. We are talking about Oracle, because that's what we do, Cory.

Cory Johnson (0:12)

I'm on the floor of the New York Stock Exchange. I love being down here.

Sam Vardis (0:14)

You are, in the flesh.

Cory Johnson (0:16)

I have been here often for many, many years.

Sam Vardis (0:19)

We love it when you're here. Let's talk about Oracle in the headlines once again, citing force majeure to shield itself from this data center.

I mean, what did you make of this when you first saw it? Because there's so many threads that Merritt pulling on that I kind of want to pick your brains about all these.

Cory Johnson (0:36)

I'm on Oracle. You can take everything I'd say with a grain of salt. Someone at Oracle said, why do you always say that before you talk about us? But I want you to know I'm biased.

So I'll give you my honest opinion, but understand what my bias is. But I was worried. I see this in like force majeure, like, well, I hope there wasn't a hurricane in Texas.

Well, seriously, you don't know, like that's what this is set up for generally, is things that are outside of the control, a major event outside of the control of a company, is when force majeure is called upon. And so I want to see what this is and what it is, but I want to think about this in the context of Oracle. So in the context of data center builds, Oracle brought in the finance bros to hold the debt, and be officially the owners, and before they turn the keys over to Oracle, as Oracle is developing the facility. Oracle sees no revenue until the facility is turned on, and they have argued to Wall Street and argued to me that this is a good thing, that they don't have to show the expenses and show the revenues until they happen in the same moment for many of their deals, including this Project Jupiter in New Mexico, which is a huge deal. We knew that there were delays in the pipeline that Energy Transfer is trying to build, because trying to find the pipeline. All the pipeline guys always want to find the shortest route regardless of what's in between point A and point B, and sometimes what's between point A and point B doesn't want to have a pipeline on it. That's the nature of building pipelines. We knew there was a delay. We knew New Mexico was fighting against the course that Energy Transfer had picked. So you're worried about is Oracle going to get this thing done? Is it going to get done? Is it going to get done in time? Today is the first sign from Oracle we've seen that maybe it won't get done when they want to get it done.

Sam Vardis (2:14)

You mentioned the finance, bros. Let's talk about that. I mean, how concerning is it for those lenders who backed this?

Cory Johnson (2:19)

This is now saying it's their problem, not Oracle's problem if the contract holds up. So then you have to ask yourself, so the finance bros in this case are Blue Wall. Blue Wall brought in their finance bros and said, we'll hold the debt, we'll sell the debt, we're really good at this Oracle. Oracle has plenty of finance people, arguably the best in all of software, maybe the best in all of technology. Yeah. Oracle contracts are a legend in Silicon Valley. They are so strong and so carefully worded. So as an investor, you're going to make a bet today. You've got a chance to make a bet this morning. Do you bet that Oracle's contract is better for them than it is for Blue Owl?

Because Blue Owl are the finance bros, but Oracle's got their own finance bros. And the history of Silicon Valley, if you bet on the Oracle finance bros, you win.

Maybe that's the case here. That's certainly the bet that I have taken. But historically in Silicon Valley, if you bet on the strength of an Oracle contract, that's usually a good bet to take.

Sam Vardis (3:16)

Okay. And you mentioned, you know, that the force majeure is typically used in kind of natural disasters, things like that. So it's kind of weird. I mean, what do you think about the fact that it's being used in this context when we're already talking about some of the snacks that data centers are already hitting?