Key Takeaways
- Oracle has reportedly canceled a chip-leasing deal with Tencent worth an estimated $7 billion after pressure from the Trump administration.
- At about $1.4 billion a year, the lost revenue is around 1% of what analysts expect for fiscal 2028, though NVIDIA’s new 51% rule on Chinese customers could make the freed capacity in southeast Asia harder to re-lease.
- The bigger risk is that Oracle used its full $20 billion cap on new capital through fiscal 2030 this week, so it needs its big customers, ByteDance included, to keep paying.
- Oracle’s fiscal second-quarter results in mid-December will show whether its $664 billion backlog held up.
Oracle (ORCL) has canceled a chip-leasing deal with Tencent worth an estimated $7 billion after pressure from the Trump administration, the Financial Times reported this morning.
The news came a day after a report that NVIDIA (NVDA) has told its cloud customers they must sell at least 51% of their services to non-Chinese companies. It also came two days after Oracle’s $20 billion stock and bond sale.
A five-year lease, gone
Tencent had signed a five-year lease for access to as many as 100,000 advanced AI chips across data centers in southeast Asia. It was Tencent’s largest overseas leasing deal. US officials raised concerns with Oracle, and officials in Guangdong, where Tencent is based, reportedly pressed Tencent to back domestic Chinese chips.
Deals like this are allowed under current rules. But Chinese AI groups use them to train models on chips they can’t use at home, and Washington wants to shut off that access.
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The $7 billion is small
Spread evenly over five years, the contract comes to about $1.4 billion a year. Analysts expect Oracle’s revenue to nearly triple from fiscal 2026 to fiscal 2029 as its AI contracts turn into sales:
The $132 billion analysts expect for fiscal 2028 is roughly 95 times that $1.4 billion. So losing Tencent shouldn’t move those estimates much. A contract that size is also about 1% of the $664 billion backlog Oracle reported at the end of August.
Compute is still scarce, too. On its September earnings call, Oracle said its GPUs were 97.9% utilized last quarter. Capacity that came up for renewal was renewed or resold at 20% more than before.
Finding a new tenant could be harder than usual, though, because of where these chips sit. ByteDance and Alibaba are the biggest customers for data centers in southeast Asia. Under NVIDIA’s new rule, a cloud there has to sell most of its services to non-Chinese buyers on any new contract. One Singapore-based cloud provider reportedly said that’s hard to do outside the US.
Oracle has no room left to raise
The building costs have pushed Oracle’s free cash flow deep into the red:
Analysts expect it to fall to negative $37.7 billion in fiscal 2027. Oracle doesn’t see free cash flow turning positive until the second half of fiscal 2028.
Borrowing has covered the gap, and total debt, including leases, more than doubled from fiscal 2022 to fiscal 2026:
At its Oct. 28 Investor Day, Oracle capped new capital raises at $20 billion through fiscal 2030. On Monday it used the whole cap: 86.2 million new shares and $10 billion of notes, at coupons of 7% to 8.65%.
With no room to raise more, Oracle needs the customers it has, and the ones it signs next, to pay for the rest of the build.
ByteDance is the bigger question
Oracle is a major supplier to ByteDance in Asia and runs several data centers for it in Malaysia. Those are existing contracts, so NVIDIA’s rule doesn’t touch them. My read: if Washington leaned on Oracle over Tencent, ByteDance’s Asian business is the obvious next target.
The rule also cuts into demand for NVIDIA itself. A rack of its B300 chips sells for about $600,000 internationally and reportedly fetched $2.8 million in China last month. The open question for NVIDIA is whether buyers outside China can absorb that capacity as quickly.
The way I see it, Oracle can probably re-lease the Tencent capacity, and the $7 billion on its own is a small loss. What worries me more is that Oracle has no funding slack left, and Washington just showed it’s willing to step into Oracle’s China business. Oracle reports its fiscal second quarter in mid-December, and its backlog against August’s $664 billion will show whether anything else went with Tencent.
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