Oracle Calls Force Majeure Already?

Tyler Crowe (0:02)

Oracle is forcing the issue with AI. Motley Fool Hidden Gems Investing starts now.

Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by long-time Fool contributors, Lou Whiteman and Jon Quast. And guys, we had a plan for today, but using the term from one of our prior hosts, the news fairy showed up right before we recorded, and we decided we had to change it up a little bit. We're going to start today with the news that Oracle has called force major on a new data center project in New Mexico. And I want to channel my Ron Burgundy voice from Anchorman because boy, that escalated quickly. I mean, basically Oracle is claiming that it isn't liable for costs or expenses if this project, I think it's called the Jupiter project, is delayed. It's supposed to come online in 2028 And this story almost reads like a usual suspect's line of the infrastructure play or theme that we've seen. And especially a lot of the ones where the thesis is a little bit shakier. I mean, we have a subsidiary of private capital company, Blue Owl is the developer. Obviously, private capital and developing has been a challenge one there.

It is one of the big projects backed by OpenAI and SoftBank. And additionally, on the energy side, it's the one project that has committed to using fuel cells, which has been part of the thesis for Bloom Energy getting into the AI infrastructure trade. We got a lot of things kind of up in the air here. This project was announced two years ago and wasn't expected to come online for a bit. Like, all of these stocks are down today. Guys, what was your reaction to this? Because I found this one kind of alarming.

Jon Quast (1:42)

It makes total sense to me that Oracle would make this move. And here's why.

Nobody is going to argue that Oracle isn't pushing the limits when it comes to extending itself to fund the data center infrastructure build out. It is absolutely extending itself. Now, you can succeed even when you extend yourself. You just have to make sure that money coming in is going to cover the money going out, right? And when it comes to this data center in particular, there are reasons to think that maybe this doesn't come up when ORCL wants it to come up, when it expects it to, when it needs it to. The tide of public opinion has turned violently against data centers. And I would say it's maybe even worse in left-leaning states such as New Mexico where this particular project is. So there is real reason to say there might be delays from regulatory bodies, from all sorts of things that could push back when ORCL is able to monetize this data center. So it makes sense to me that it would put this clause in place so it's not having to make payments before it is generating revenue.

That doesn't necessarily mean that the project is doomed. It doesn't necessarily mean that ORCL is now in big trouble, but it does point to the fact that ORCL has extended itself and it really can't start making those payments before it is getting the job done there on the project.

Lou Whiteman (3:26)

Here we go, right Tyler? Exactly what you said that we have all of these companies that have been into headlines.

I think Jon's right that a lot of this is just technicality, like reserving rights. I do think it's fun and we should talk about in a second, why now, why this second, because I want to speculate there. But look, I think this is really useful for investors, whether or not it's good news or bad news. Jon says that, you know, left-leaning states, but look, we're seeing moratoriums in Texas, we're seeing moratoriums all over the place.

We've been saying forever, this is going to come up. And there's been an open debate among pundits, among analysts, among lawyers about exactly what would happen, who's liable, how much liability, where it all falls. I think it would be really useful for it to play out once, and so we could answer these questions instead of yell across the aisle at each other. So, you know, bring it on. If ORCL is successful in this, it takes pressure off of ORCL and maybe some of the other ones that are making commitments. Maybe it means more commitments, you know, it might mean people are more aggressive because they can kind of go further onto thin ice and be safe. If they get slapped here, it could at least cause a rethinking. If they do walk away, can Blue Owl backfill? We get a kind of a test on demand. There are so many kind of questions that have been out there just as hypotheticals or as stuff for people like us to argue about without anybody knowing that maybe if this plays out, we'll start to get answers to and as an investor, that's clarity over time.