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Oracle (ORCL) sits 56% below its 52-week high; Jefferies cut price target to $320 from $400 after shelving expansion with OpenAI on the $500B Stargate project. Nvidia posted $150M; Meta eyes tenancy; Microsoft is a partner.
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Oracle and OpenAI shelved data center expansion plans after negotiations stalled over financing terms and OpenAI’s evolving compute requirements, though the core agreement remains intact.
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Last year, Oracle (NYSE:ORCL) announced a massive, $500 billion data center project in Texas that signed on major AI stocks as partners. The Stargate initiative was positioned as a transformative leap for the company’s cloud business, promising to power next-generation AI workloads and deliver outsized revenue growth.
While questions loomed about Oracle financials and the debt it was assuming to bankroll the enormous buildout, Wall Street largely viewed it as a potential big growth opportunity in the red-hot artificial intelligence infrastructure race. The project appeared to cement Oracle’s role alongside tech giants chasing generative AI dominance.
Yet a Bloomberg report yesterday called into question the health of the project by saying plans for Oracle and OpenAI to expand the project have been shelved.
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The Bloomberg report delivered the first crack in the Stargate narrative. It revealed that Oracle and OpenAI have quietly scrapped tentative plans to lease a large expansion at their flagship 1,000-acre AI data center campus in Abilene, Tex. The site — developed by Crusoe Energy and publicly unveiled last year at the White House alongside President Donald Trump — had been billed as a centerpiece of the AI computing boom. Negotiations reportedly dragged on over financing terms and OpenAI’s evolving compute requirements, ultimately leading both parties to walk away from the additional capacity.
Crucially, the core July agreement for Oracle to develop 4.5 gigawatts of dedicated data center capacity for OpenAI remains fully intact and on schedule. Construction at the Abilene campus continues, with multiple sections already operational and running on Nvidia (NASDAQ:NVDA) AI semiconductors. Still, the shelved expansion has created an immediate opening for Meta Platforms (NASDAQ:META) to step in as a potential tenant, with Nvidia actively facilitating discussions and even posting a $150 million deposit with Crusoe.
While the report stops short of declaring the entire project in jeopardy, the news highlights the execution risks inherent in these multi-billion-dollar AI infrastructure bets. Oracle has committed massive capital expenditures and taken on significant operating lease obligations to fund data center growth. Any sign of softening demand or shifting partner priorities can quickly unnerve investors already skeptical of the company’s leverage profile. The market’s immediate reaction was telling: Oracle’s shares gave up earlier gains, dragging related AI infrastructure names lower as well.
CNBC quickly followed with its own reporting, citing sources who insisted the broader Stargate project remains firmly on track. According to those briefed on the matter, eight data center sites are currently under construction and proceeding as planned. While there had been earlier internal discussions about expanding beyond those eight sites, such ambitions are no longer “in the cards,” at least in the near term. The CNBC segment stressed that the shelved expansion reflects a pragmatic recalibration rather than any fundamental breakdown.
The network also highlighted a key vulnerability: Oracle’s heavy dependence on OpenAI. The AI leader has become one of the company’s most important cloud customers, and any perceived weakness in that relationship sends immediate shockwaves through Oracle’s valuation. Because so much of Oracle’s future growth narrative is tied to AI hyperscalers, the stock remains hypersensitive to headlines involving OpenAI, Microsoft (NASDAQ:MSFT), or other major partners. CNBC’s sources effectively calmed fears of outright cancellation but did little to dispel concerns about capped upside and heightened financial risk.
The Stargate project looks like nothing has changed regarding its development, only that it is just not going to get any bigger, at least not right now. Yet, Wall Street reacted immediately, with Jefferies cutting Oracle’s price target to $320 from $400 per share, though it reiterated its Buy rating.
Oracle stock remains 56% off from its 52-week high as concerns remain high over its balance sheet and ballooning operating lease commitments. While there is opportunity to cash in on its swelling backlog, free cash flow could stay negative for years if demand falters or timelines slip, making its stock only appropriate for investors who can stomach volatility and heightened risk.
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