The Unexpected in the Terra Incognita of data centers whip up The Perfect Pricey Storm for Oracle. Oracle knows how to build software, not huge data center buildings. Buildings have messy things like power supply, coolant, and permitting at the local and state levels. There is also The Unexpected that any experienced builder will factor in even when unknown, whether it’s wiring, racks, chips, out of spec cement, etc., that delay Opening Revenue Day. The Unexpected increasingly includes what is termed “social costs” that start around genuine concerns such as power draw, transmission lines, water usage, disruptions, even heat foci (a Cornell Tech study found a 10 degree rise on current data centers). Many local “interests” use these tentpoles to support the classic tactics of dissuade, delay, and (ramping up) the difficulty. When the pockets like Oracle’s aren’t deep and labeled ‘debt’, this hurts.

In the New Mexico west bordering Texas, where it’s underpopulated and land is cheap, Oracle’s 1,400-acre, 2+ gigawatt Project Jupiter super data center build for OpenAI is hitting roadblocks, primarily around power. The original plan to power it with gas from its own natural gas plants hit environmental potholes. Then Oracle switched to natural gas fuel cells from Bloom Energy. They use little water, pollute less and are reasonable in carbon emissions. But the cost? $8 billion, a few billion more than the gas plants. They also have other sticky requirements; to not degrade, the cells must continuously run, which scuppers Oracle’s plan to switch off to far cheaper solar on sunny days. TTA 7 May

New Mexico and to a lesser degree west Texas have rising environmental concerns. New Mexico in particular is generally hostile to big business and fossil fuels. The natural gas pipeline needed to supply the cells that runs through New Mexico is on its second rejection by the New Mexico Environment Department. The next hearing isn’t till 19 October. The cherry on this cake? The state Attorney General is investigating complaints from local residents that their names were used fraudulently in support of said fuel cells. The greenhouse gas emissions are also claimed by environmental groups to be equivalent to New Mexico’s two largest cities, a claim that evades logic for Albuquerque alone. These groups now are pushing for a data center moratorium, a growing national cause that ignores that the data center is partly built, the water being used is non-potable from outside the area, and that the builder, Oracle, is working hard to respond to critics in the local areas by plowing money into local concerns.

Oracle isn’t the only one, but the one with the least resources. Oracle, Microsoft and OpenAI projects in Wisconsin are having costly difficulties with power authorities on building transmission lines and cost sharing. This may add $100 million to Oracle/OpenAI’s Port Washington, Wisconsin data center. Oracle’s low credit rating also hurts them, where Wisconsin’s state power regulator is requiring financial guarantees in cash or lines of credit in case the project fails. This will cost Oracle $100 million–annually. In Texas, Big AI such as Meta and Google are having more success in partnering with local power utilities in building permanent infrastructure and renewable sourcing, including closed water systems to prevent toxic wastewater runoff into land and local water systems.

So why is Oracle making a chancy bet at the Data Center Infrastructure Landlord Table? Concluding from The Information: “even though the cost to build and power a gigawatt of AI is bordering on at least $60 billion, Nvidia servers powered by its Grace Blackwell chips, renting out at $3.50 an hour, could generate around $12 billion to $13 billion a year, including operating costs.” Your Editor reads this simply as a 4-5 year payback. However, that statement rests on a mountain of assumptions–that hourly rental costs remain high, that build costs remain somewhat stable or lower, that land and construction stay relatively cost static, that the small coterie of AI customers keep paying their bills, and that local groups do not succeed, as they seem to be doing, in increasing costs, demanding moratoria, and delaying online dates.

There are many reasons why Oracle’s bonds are hovering just above ‘junk’, as Mr. Market keeps reminding us. Computing UK. Add to that list that data center cost assumptions have gone spectacularly sideways and the expectations within Oracle didn’t account for (drum roll) The Unexpected.

Oracle did have some very good news last week from the Federal Government for its first Ladder in awhile. The Department of War (a/k/a Department of Defense) is contracting with Oracle for software in a deal that could be worth up to $7 billion over ten years. The exact contract has a base value of $3.31 billion for the first five years of the agreement and a total value of $6.99 billion if the additional option years are exercised.

The DoW Enterprise Software Initiative (ESI) puts contracting into a centralized framework to expedite procurement, versus the typical individual procurement process by separate agencies. The DoW ESI covers procurement for intelligence agencies and the Coast Guard. According to CNBC, “The contract covers the use of Oracle software in on-premises data centers for branches of the military, the U.S. intelligence community and the Coast Guard, according to a statement. The Central Intelligence Agency was Oracle’s first customer. A five-year base period for the contract includes perpetual and subscription-based software licenses, maintenance and consulting, according to one description.” DoW in its own release expects savings of $441 million when compared to the cost of buying Oracle products separately. (And come on, fellow writers. It’s the Department of War at the top of the release, not the Department of Defense, whatever arguments including historical you may have about it.) Oracle release, Federal News Network