Oracle Corporation's stock (NYSE: ORCL) edged higher on Wednesday, even as reports emerged that the company had scrapped a $7 billion chip leasing agreement with China's Tencent Holdings. According to the Financial Times, the cancellation followed pressure from the Trump administration, highlighting the growing challenges for US cloud providers serving Chinese artificial intelligence companies.
The five-year contract would have provided Tencent with access to up to 100,000 advanced AI chips across data centers in Southeast Asia. It was initially reported in September and would have been Tencent's largest overseas chip leasing arrangement. US officials reportedly approached Oracle to express concerns, while Tencent also received visits from senior officials in Guangdong, who encouraged the company to support domestic Chinese chip suppliers.
This development underscores the tightening scrutiny by Washington on arrangements that could give Chinese firms access to advanced computing infrastructure. Chinese technology companies have increasingly turned to overseas data centers to secure computing capacity for training AI models, especially as export controls restrict the shipment of advanced Nvidia processors to China, including through intermediary locations.
Oracle's stock was up 0.95% at the time of writing, reflecting investor resilience despite the setback. The company is a major supplier to ByteDance in Asia, operating multiple data centers in Malaysia, and previously hosted US customer data for TikTok before joining a consortium that acquired the social media platform's US operations late last year.
Oracle's AI Customer Concentration Risk
The Tencent agreement was expected to help Oracle diversify its customer base beyond a relatively small number of large clients. Its reliance on cloud contracts with OpenAI has been cited by investors as a potential risk. The cancellation adds uncertainty to Oracle's efforts to expand its AI infrastructure business, particularly as Chinese companies seek access to computing resources unavailable in their domestic market.
Demand for overseas chip leasing has increased amid tighter export controls, leading to higher prices, longer contract terms, and larger upfront payments for data center leases. Tencent's latest Hunyuan models have shown performance improvements, narrowing the gap with leading domestic models such as Alibaba's Qwen.
$20B Fundraising to Fuel AI Expansion
Investors are also monitoring how Oracle finances its AI infrastructure expansion. On Monday, the company announced plans to raise $20 billion through equity and debt offerings to fund its cloud and AI investments. Oracle priced the sale of 86.2 million shares at $116 each, an 11.2% discount to Friday's closing price. The equity offering is expected to raise about $10 billion, with another $10 billion coming from debt offerings maturing between 2029 and 2046.
The fundraising underscores the scale of Oracle's investment plans as it seeks to more than triple revenue by fiscal 2030. The company said capital spending would peak in the current fiscal year and the following year, while pledging to raise no more than $20 billion in additional AI financing through fiscal 2030.
Oracle reported first-quarter revenue of $19.35 billion, up 30% and above Wall Street expectations of $19.14 billion. It secured more than $30 billion in additional AI cloud contracts during the quarter, lifting its remaining performance obligations, or backlog, to $664 billion. The company also raised its fiscal 2027 adjusted earnings and revenue forecasts while maintaining its projection for $70 billion in full-year capital spending.
This article is for informational purposes only and does not constitute financial advice.
