Oracle Calls Force Majeure Already?

Motley Fool Hidden Gems Investing

The episode examines Oracle's preemptive declaration of force majeure regarding its New Mexico data center project and the potential implica

Key takeaways

• Oracle is claiming force majeure on its 'Jupiter' project in New Mexico to avoid liability for potential delays through 2028.
• The New Mexico data center project involves significant stakeholders including OpenAI, SoftBank, and developer Blue Owl.
• When evaluating corporate spinoffs, investors should look past valuation discounts to understand the underlying business rationale and capital allocation goals.
• International fintech giants like Revolut and NewBank are preparing for US expansion due to a more favorable regulatory environment.
• The rise of the 'agentic economy' may disrupt pure-play internet fintechs while leaving physical point-of-sale layers relatively intact.

Main topics

• Oracle Force Majeure
• AI Data Center Infrastructure
• Corporate Spinoff Evaluation

Notable quotes

The tide of opinion, public opinion, has turned violently against data centers.

Conclusion

The episode highlights how regulatory shifts and corporate restructuri

Transcript preview

Speaker 5 (0:01) 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 longtime Fool contributors, Lou Whiteman and John Quast. And guys, you know, 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 majeure on a new data center project in New Mexico. And I want to channel my like 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 suspects line of the infrastructure. play or, you know, 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, a 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. 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've 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. Speaker 1 (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 Oracle wants it to come up, when it expects it to, when it needs it to. The tide of opinion, 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 Oracle 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 Oracle is now... in big trouble, but it does point to the fact that Oracle has extended itself and it really can't start making those payments before it is getting the job done there on the project. Here Speaker 4 (3:26) we go, right, Tyler? Exactly what you said, that we have all of these companies that have been in the headlines. I think the most I think John's right, that like a lot of this is just technicality, like reserving rights. I do think it's fun. And we should talk about in a second, like. 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. John says, you know, left leaning states. But look, we're seeing moratoriums in Texas. We're seeing moratoriums all over the place. This is 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 Oracle is successful in this, it takes pressure off Oracle 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. I've got a Speaker 5 (5:00) couple of questions here. And one of them I may actually have to put on like a conspiratorial tin hat. You may have to walk me off the ledge here a little bit. But here's here are like some of the reactions I immediately thought of when I saw this was number one, like. Oracle's calling force majeure two years before they even have to make a payment on anything. That was, in some senses to me, alarming. Coming from oil and gas, when I hear force majeure, it's like something bad happened right now and I can't deliver on a contract three months from now. Two years is a long development time. And the fact that they're already calling this is somewhat questionable because I think when we have been talking about this development, Oracle has been, as we've said, one of the shakier ones. It's been using off-balance sheet deals to get it done, not taking on a lot more debt relative to the alphabets, the Amazons, the worlds to do it. And so to as quickly call force majeure, I found fascinating and also a little bit on the competitive position here. And here's my conspiratorial thought. And again, you can walk me off the ledge here, but. Oracle has been doing a lot of these deals with OpenAI where it's like OpenAI, they take an investment in OpenAI. And, you know, we've talked about these circular financings. And now all of a sudden, all of these AI companies are delaying their IPOs for safety reasons, or they're saying safety reasons. We've seen a lot of stories coming out about obvious safety questions. And so part of me is saying like, well, maybe Oracle's doing this because they know they are going to struggle to get paid. Speaker 4 (6:32) from the people that they said they got the commitments from. I think that's interesting. I mean, look, I think that my conspiracy theory on these safety things is that these companies pre-IPO want to focus on revenue and not the science project. And that would mean kind of, you know, maybe not the frontier models getting all of the attention. And