Oracle's data center construction troubles are evolving from an engineering problem into a credit risk. A new Morgan Stanley report points out that delays do not provide breathing room for capital expenditure, but instead compress massive debt repayment pressure into 2028, forming a deadly overlap with multiple key financing milestones.

Morgan Stanley credit analyst Lindsay Tyler explicitly stated in the report that delays "equally mean delayed monetization, delayed proof of concept, delayed revenue, and delayed cash flow." This judgment strikes at the core investment thesis for Oracle — its over $600 billion in future contracted revenue (RPO) is highly dependent on AI data centers being delivered on schedule.

As of Thursday's close, Oracle's 5-year credit default swap (CDS) stood at 261 basis points, a record high, implying a probability of default exceeding 20% within five years, while the company still holds an investment-grade rating.

Market pricing had already reacted before the report was published. According to Bloomberg, Goldman Sachs' credit department disclosed last week that AI single-name CDS trading volume surged 400% year-over-year, with Oracle topping the list. Its bonds maturing in 2056 are currently trading at approximately 82 cents, yielding over 8.3%; the CDS has more than doubled from the level when Morgan Stanley recommended buying protection a year ago.

Wisconsin Power Bottleneck: Delivery May Be Delayed to Mid-2028

Project Lighthouse is located in Port Washington, Wisconsin, one of two campuses Oracle leases to Vantage, comprising four buildings with a critical IT load of approximately 902 megawatts, contracted in September 2025.

From the outside, the main structures are progressing smoothly, and Oracle even included drone aerial photos of the construction site in its June earnings presentation to showcase "tremendous progress."

The problem lies on the power supply side. The campus requires approval from the Wisconsin Public Service Commission (PSC) for new transmission lines to bring in grid electricity through We Energies. The PSC revoked its completeness determination on ATC's transmission application in August, and after the case was closed, ATC refiled under a new docket, restarting the approval process from scratch.

Morgan Stanley, citing related analysis, noted that "there is substantial risk that meaningful power supply will not be available until mid-2028," while Oracle's initial delivery timeline in its June guidance was the second half of 2027.

Morgan Stanley also pointed out that WEC indicated Oracle's S&P rating downgrade triggered additional collateral requirements, and "the current rating already requires full credit support." In other words, Oracle is paying cash deposits to the utility company in advance for power it will not receive until 2028.

Another project under construction, Jupiter (located in New Mexico), had previously triggered force majeure clauses. Oracle is evaluating transporting compressed natural gas by road to the campus at approximately four times the cost of pipeline gas, while waiting for Energy Transfer's rerouted pipeline to be in place next year.

The "Capex Relief" Argument Does Not Hold Up

There is an optimistic narrative circulating in the market: construction delays mean GPU procurement and infrastructure spending are pushed back, which in the short term actually eases balance sheet pressure. Barclays adopted this logic after Jupiter triggered force majeure, viewing the events as "credit neutral."

Morgan Stanley offers four counterarguments.

First, the delay in revenue and cash flow realization postpones external verification of whether Oracle's massive investments and contract backlog can effectively translate into financial returns.

Second, and most concerning to bondholders: delays do not reduce the total amount of capital expenditure — they only compress and concentrate it. If all four Wisconsin buildings are completed and ready when transmission lines arrive in 2028, Oracle will have to simultaneously procure GPUs for all buildings and begin paying rent, with Jupiter's server rooms potentially coming online at the same time, concentrating capital demands into just a few quarters.

Third, the delivery timeline and default liability provisions in RPO contracts are not transparent externally, creating uncertainty over whether delays trigger customer default remedy rights.

Fourth, execution risk could affect customer behavior and thereby reduce prepayments — a key potential financing source for Oracle — as customers may reduce new contract signings or be unwilling to renew.

Oracle borrowed approximately $43 billion in fiscal year 2026 (ending May 31, 2025), and expects to refinance approximately $40 billion in debt and equity this fiscal year.

Lindsay Tyler estimated in a previous report that even if Oracle obtains another approximately $40 billion in customer prepayments, its parent company financing needs "may still require completing two large bond issuances before the end of fiscal year 2028."

The Most Worrying Part: 2028 Debt Maturity Refinancing

Another detail in the report worth highlighting is Abilene — the flagship Stargate campus in Texas, and currently the only large project truly operational, with six of eight buildings already delivered.

The issue is the financing structure. Abilene's $9.4 billion construction loan is interest-only, all maturing in 2028, at which point it must be refinanced into long-term bonds priced on Oracle's credit. But Oracle's current credit spreads are approaching junk levels, and the 10-year Treasury yield touched 5.33% last week, the highest since 2002.

Morgan Stanley noted that "delayed projects make refinancing of completed projects increasingly difficult" — market concerns about Oracle's credit profile are creating a chain effect through Abilene's refinancing pressure.

From a broader perspective, data center construction debt related to Oracle totals approximately $79 billion. Of that, about $33 billion (roughly 40%) is concentrated in the two projects — Lighthouse and Jupiter — already confirmed to have power delays, not including the Shackelford County campus, where reports have shown Oracle using trucked gas during initial construction.

Most bank loans are short-term, corresponding to 15-to-19-year leases, essentially betting that Oracle can refinance between 2028 and 2032 at current spread levels. And current spread levels are no longer comparable to those when these loans were signed.

Watch the October 19 Wisconsin Ruling

Morgan Stanley acknowledges that Lighthouse's timeline from Vantage's perspective still "broadly aligns with the 2028 full-campus completion target," and emphasizes that its negative view "was formed before the project delays" and is rooted in fundamental analysis. But this is precisely the core contradiction: fundamentals were already under pressure before natural gas had to be trucked in.

According to Bloomberg, Oracle is in talks with Apollo and Goldman Sachs to finance large-scale chip procurement through off-balance-sheet vehicles. This could ease short-term parent company borrowing pressure, but it also keeps adding new layers of competition to the credit buyer market that will ultimately need to absorb Abilene's refinancing.

There are two key near-term observation points: first, the Wisconsin PSC's completeness ruling on ATC's refiling, expected on October 19; second, Oracle will report second-quarter results in December, when the market will focus on whether the company can present a concrete financing plan.