How social risk is financially material for hyperscalers

With AI development seemingly a race between hyperscalers, delays to data centre construction matter financially. However, these risks may not be fully reflected in current credit assessments. Disclosed data centre lease obligations already total USD1.4tn, with a further estimated USD1.1tn off-balance sheet, making project-level risks harder to trace back to the issuer.

The case of Oracle and Project Jupiter exemplifies these issues. Amid protests over local water supply, and power and pipeline setbacks, the initial phase of the project is at least seven months behind schedule. Oracle has issued a force majeure notice to the site developer, yet remains liable for payments related to the project.

Since its July downgrade to BBB-, Oracle’s bonds have underperformed markets significantly, and its CDS is now quoted nearly 50bps wider than bond spreads. While Project Jupiter is likely one factor among several, the case suggests social opposition warrants consideration in credit analysis.

About the authors

Prahalad Prasad

Associate Director, Research

Based in London, Praha covers topics including but not limited to the just transition, sustainability-linked bonds and deforestation. He previously spent seven years in Lloyds Bank’s Debt Capital Markets team.

Josephine Richardson

Managing Director, Head of Research

Based in London, Jo leads AFII’s research and a global team supporting fixed income investors as they align their portfolios with climate and sustainability goals. She joined AFII after 18 years in fixed income markets at JPMorgan.