Oracle's Force Majeure

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0:04Speaker 2:Podcasts.

0:05Speaker 1:Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio.

0:16Speaker 3:Hey, keep an eye on shares of Akamai because it is up about 17.5% here in the African market. Yeah, that's why we need to just talk about it a little bit because Anthropic has signed an $ 11. 6 billion seven-year contract with Akamai Technologies for computing power, adding to the AI developer's growing list of data center deals. I think what's interesting is Akamai is going to supply Anthropic access to central processing units. We're talking about CPUs. Has issued a warrant that gives Anthropic the right to buy Series B shares that converts it to common stock. Talk about quite a deal. And the contract represents the largest deal in Akamai's history, with the company estimating that its CapEx spending, its capital spending, tied to this one agreement, will total about $ 5. 5 billion.

1:03Speaker 1:Fortunately... Talk.

1:04Speaker 3:About something that might.

1:05Speaker 1:Fortunately, Anurag Rana is here. He's Bloomberg Intelligence Senior Technology Analyst for... Bloomberg Intelligence, as I mentioned. Check out his research on the terminal. He joins us from our Chicago bureau. Anurag, remind everybody where Akamai technology plays in the AI infrastructure world.

1:28Speaker 2:Actually, I wasn't even sure they were playing in that world because before that, I thought they were doing something else.

1:33Speaker 1:Well, I know them from the Netflix days many years ago.

1:36Speaker 2:I know. But it seems like if you have free data center capacity, you can go out and sell it to others. Maybe I'll go see if I have computing capacity at home. I can sell it to any of these frontier labs as well.

1:50Speaker 1:So the story is about all of these companies going and trying to find capacity wherever they can. And Akamai has that capacity.

2:00Speaker 2:That's what I see. To be honest with you, before I was coming here, I didn't even know this thing was existing, frankly, that these guys do this business. But that's not what it looks like right now, that if you are looking for any way to make money, GPU pricing is so high that this may be a good business for everybody to get in, not just GPU, but CPU pricing as well, obviously.

2:20Speaker 3:You know, I'm looking at the FA page for Akamai, and so they had $ 4. 2 billion revenue in 2025. $ 11. 6 billion seven-year contract with Akamai, signed by Anthropic. They're going to spend some $ 5. 5 billion, it says, in CapEx. How does this kind of change? I know it's early. We're throwing this at you just as it's been crossing.

2:40Speaker 1:But does it.

2:41Speaker 3:Change the balance sheet a lot for this company?

2:45Speaker 2:A lot depends on it. So the question is, when you look at something like this, we are here to talk originally about Oracle, but these deals, when you look at it, are structured on a particular contract that they got. So it's possible when you are looking at a specific contract with a specific provider, you will have some backstops as well, whether from the chip provider, whether it's NVIDIA or somebody else. So the question really is, when they go out in the market to look at debt for that, what kind of covenants would be, what kind of backing there is. So there is a lot of ifs and buts, but all of these deals need to be financed one way or the other.

3:25Speaker 3:Can I just ask you, though, is it another sign of circular financing? Because this story, the whole idea, you've also got Akamai said, Part of the warrant issued to Anthropic represents about 2% of Akamai's common stock, but it gives an opportunity for Anthropic to invest in this company. Again, it's very close.

3:44Speaker 2:Yeah, but the thing is, think about it this way. When you are a frontier lab and you're doing some really high-end work and you need more capacity, you are not getting it anywhere. I mean, you are tapped out of any of the larger hyperscalers. You've already done what you can with them. You know, you go and find it for the neoclouds. After that, you know, You just keep on going and trying to find wherever you can. And one of the biggest complaints I think Sam Altman has had against Anthropic has been that they haven't had enough computing capacity. Now, the Anthropic side would be, well, we go out and get capacity when we need it, depending on the demand. So I think there's a lot of that happening here. So I personally am not in that circular financing camp. Only because the demand is coming from customers, you're not manufacturing demand on the fly here.

4:35Speaker 1:Okay, should we talk about Oracle and a force majeure?

4:38Speaker 3:Yes.

4:38Speaker 1:Okay, this was one of the most notable decliners, I would argue, and there's so much interest around it. If you go to the last eight hours in the Bloomberg Terminal, this is the most read story. Oracle sending a notice citing force majeure to the developer of a massive data center being built in New Mexico. This developer is a unit of Blue Owl, and its attempt to put off payments if the data center gets derailed and fails to come online is as planned, this according to people familiar with the matter. Is this a story about private credit?

5:07Speaker 1:Is it a story about circular financing? Is this story about Oracle? Is it a story about the AI infrastructure spend?

5:14Speaker 3:What is it?

5:16Speaker 2:So Oracle addressed this issue very clearly on their conference call. They basically talked about and said, yeah, they are building multiple data centers in multiple locations. you would always get into a situation where some of them are running on schedule and some of them may be slightly behind. And this New Mexico data center were asked specifically on the conference call and said, well, what happens if this thing doesn't come online as scheduled? Would you have an impact on your sales growth? And the CEO was very categorically straight up and said, It's not going to have any impact on this year's number because these kinds of redundancies, they keep on plan. So all of these cloud vendors, whether it's a new cloud or hyperscalers, are building multiple data centers around the world. Just because of the opposition that you're seeing right now, you're going to face some of this stuff. So in our view, this is a bigger story that there could be some delays out there.

6:11Speaker 2:But the big question is, are you going to see an acceleration in delays or this is a one-off?

6:18Speaker 3:So don't read it as a problem. Like you said, if we start to see other companies, because it just feels like, could they possibly walk away from this completely?

6:26Speaker 2:Would they? Oh, somebody will come and get it. That's not an issue. I mean, if they don't have, I mean, you just heard Anthropic, you know, looking anywhere for capacity. So I'm not worried about finding a tenant for this. The question is, will the local regulators let it go through? I mean, the biggest issue now that we are seeing is the backlash from local communities. That's really the bigger problem.

6:49Speaker 1:Oracle's down about 57%. From last year's highs, it was sort of the poster child or has been the poster child about the debt story when it comes to this type of spend. Does this add to that story?

7:05Speaker 2:So it is definitely one of them is because they already have a lot of debt on their balance sheet. The second story is also from OpenAI because OpenAI has made a lot of commitments to the, you know, you could say computing commitments that we discussed just now. And one of their biggest one is with Oracle, you know, north of $ 300 billion or so when they first signed it as part of the Stargate project. Now, what happens over there is what if, you know, they see some slowdown in frontier model training? Oracle gets impacted with that stuff. So, again, not so much a near-term problem, but it could be something that happens down the road. So there are two things that are, you could say, two questions people have around Oracle right now. Okay.

7:46Speaker 3:And what's interesting, too, is kind of I feel like the power element. You know, they talk about the access to meeting power commitments as we continue to see strains on grades and so on and so forth. And it'll be interesting. Interesting to see if for any reason this kind of broadens out even more. What?

8:03Speaker 1:No, we have a lot to... I want to thank Anurag, Senior Technology Analyst for Bloomberg Intelligence. We were planning to talk Oracle. We got to talk about Akamai and Anthropic, too.

8:14Speaker 3:Two for one.

8:15Speaker 1:Yeah, we do.