Key points
- Oracle is negotiating chip financing with Apollo and Goldman Sachs
- Investors would fund a separate entity that leases chips to Oracle
- Oracle's borrowings and lease liabilities totaled $169.1 billion on August 31
- Another $288 billion of data center leases hasn't started yet
Oracle (ORCL) is negotiating with Apollo Global Management (APO) and Goldman Sachs (GS) on financing to buy AI chips for a 1-gigawatt data center, according to The Wall Street Journal. Private investors would fund a separate entity that buys the chips and leases them to Oracle.
No amount has been reported for the Oracle financing, and Oracle is still talking with other potential partners. Nvidia chips for a data center that size can cost tens of billions of dollars.
Oracle's latest quarterly filing shows $125.3 billion of borrowings and $43.8 billion of lease liabilities on August 31, a combined $169.1 billion by our arithmetic.
A chip lease would join Oracle's other leases
Under the proposed structure, investors would fund the entity that owns the chips, while Oracle would pay to use them. Leasing generally still creates a balance-sheet liability, and the treatment of this deal would depend on its final terms.
More leases are already lined up. As of August 31, Oracle had $288 billion of additional lease commitments, substantially all for data centers, that weren't yet on its balance sheet. The filing says they're expected to start between the second quarter of fiscal 2027 and fiscal 2029, with terms of 15 to 19 years.
Capital spending is running ahead of operating cash
Oracle spent $28.5 billion on capital projects in the quarter ended August 31, up from $8.5 billion a year earlier. Operating cash flow was $23.1 billion, including $11.4 billion in customer prepayments with a significant financing component, leaving free cash flow at negative $5.4 billion. Oracle reported no such prepayments in the year-earlier quarter. Cash and marketable securities totaled $37.1 billion.
The cost of insuring Oracle's debt against default hit a record on September 24.
Broadcom and SpaceX are raising chip money too
The same report said Broadcom (AVGO) is seeking more than $50 billion to finance OpenAI's chips, with Apollo and Blackstone (BX) among the lenders Broadcom has approached. SpaceX (SPCX) has been talking to lenders about $40 billion in debt to buy Nvidia (NVDA) chips.
Oracle shares were at $141.69 as of 10:45 a.m. ET on October 8, down 1.3% from the previous close of $143.56.
