00:00Oracle trying to protect itself from costs tied to a massive New Mexico data center by invoking
00:05force majeure. Let's get more insight now from Bloomberg's Wall Street correspondent Shree
00:10Natarajan. And Shree, I know you've been tracking this data center very closely given Blue Owl's
00:14investment and others. What's gone wrong that they're saying there is a chance we might not
00:19make our lease payments? I mean, it's a classic case of the friction between the grand ambitions
00:23of all the AI leaders and the AI business economy and local realities. The project,
00:29the data center we're talking about is this massive 1,400-acre campus that's being built
00:33in southern New Mexico, beautiful part of the country, right next to White Sands National Park
00:38bordering Mexico. But it is also a rural county, and there has been a tremendous amount of local
00:44pushback, regulatory challenges. You know, people are worried about the water consumption,
00:49greenhouse emissions, whether there are sufficient financial returns to New Mexico. Yes, Oracle,
00:54Blue Owl, and everyone involved with the data center project says this is a good thing for
00:58the state. This will bring a lot of benefits to the local economy. This is important and needed.
01:04But what all this challenge and all this friction has meant is it has thrown into uncertainty whether
01:09the project can truly go online as previously planned. Blue Owl, which owns the project developer
01:17stack infrastructure, and Oracle, which will be the tenant, which will be leasing the compute from this
01:22data center facility, believe everything's on track. So why are we talking about the first
01:26major notice? The point here is it is purely a defensive shield. It is not Oracle saying that
01:31it wants to walk away from the project, that it's tired of all the complaining and the frustration and
01:35it is just going away. But it wants to make sure that it is not racking up expenses. It is
01:42not on the
01:42hook for certain financial commitments and obligations if there are delays, if there are certain overruns,
01:48and if things don't go according to schedule, which as of today, they're still hoping remains the case.
01:54But there is no denying there is a lot of NIMBYism when it comes to data centers.
01:58Yeah, so let me put you on the spot. I mean, is this the canary in the coal mine? Is
02:02this basically
02:03something we should expect? We're going to see navigation around it to your point. It's going to
02:06be more of a legal posturing. Does this change things? Are we now going to have smaller data centers?
02:11Do we have more instead of larger ones? And obviously then you have a different kind of marginal cost for
02:15compute. And what are you thinking there? I'll take you up on the canary in the coal mine question because
02:19in some ways
02:19this data center project, this campus in New Mexico has become a poster child for all the issues that data
02:25centers
02:25across the country are facing. You're seeing a lot of price action in the stocks tied to Oracle and the
02:30CDS market
02:30and certain other related stocks. That doesn't necessarily mean it's all tied to this one project, which has been
02:36dubbed Project Jupiter. But investors are trying to analyze what does it truly mean for everything else?
02:42Because whether it's Silicon Alley in Northern Virginia or other parts of the country, the data
02:46center projects coming up in the battleground states heading into the midterm elections, we have
02:51seen problems everywhere. Did we really think maybe a year or two ago that data centers would be the
02:56catch line political rhetoric, campaigning rhetoric heading into the elections? But that's what it's turned
03:01into. And that is why when you see if even if this is just a fresh wrinkle in a project
03:07that's already been
03:07massively controversial, everyone is trying to tease out what's the next step and what does it mean for
03:13every other project because a lot of capital is being allocated into this process. And that's the
03:18challenge for the investors. Is this a revolution that will bring in abundance or lead to extinction?
03:24I'm right there with you, Sri. The first thing I thought about when I saw this story was the many,
03:28many conversations I've had with private capital players. I know you have to saying we're not making a
03:32directional bet on AI. In fact, the only thing we're betting on is the credit worthiness of our
03:37tenants. Basically, rental payments for these leases was treated as a sure thing. And I wonder
03:42what happens if all of a sudden this throws that into question. Does the cost of capital get higher?
03:48Presumably, bond yields will go higher for these projects and there'll be less appetite or at least
03:54pushback. Does this add another wrinkle in the whole conversation of how fast can we build
03:58if all of a sudden our assumptions around the safety of these projects change?
04:02And you can see certain clues in private markets trading, right? When this project Jupiter was
04:08rolled out, there was an $18 billion loan that was put forward, a commitment from about 20 banks. Now,
04:13there has been some amount of trading in the secondary market tied to those bonds and to those loans.
04:18And that's now trading below 90 cents on the dollars. That might not be distress levels,
04:21but it's certainly stress levels. It's not a level where a lender would like to see the trading at.
04:26So that tells you that when you see something like this, which in effect is a bit of a spanner
04:31in
04:31the works, there is going to be concern out there. And that is what is being expressed in the market.
04:36Meanwhile, it is important to point out that Blue Owl has come out and said that
04:39this notice does not change the multi-year financial commitment. So it is trying to signal
04:44to the market that, you know, the payments that it expects will be coming in as planned.
04:49No, of course, the moment.
