Applied Digital asks Oracle and Meta for billions in power guarantees before signing AI datacenter leases
The datacenter developer wants its biggest tenants — and chipmakers Nvidia and AMD — to backstop the cost of connecting new AI sites to the power grid, a sign that electricity, not chips, is now the bottleneck.
The News
Applied Digital has asked major tenants including Oracle and Meta — plus chipmakers Nvidia and AMD on a case-by-case basis — for billions of dollars in financial guarantees to backstop power and utility-connection costs before it will finalize new AI datacenter leases. The story was first reported by Bloomberg and relayed by AI Weekly late on Saturday, November 14; Oracle declined to comment, and Meta, Nvidia and AMD gave no comment. The practice has been in place since at least last year.
The reason is the power grid. Connecting a giant AI datacenter to the grid can require the developer to promise to pay for grid upgrades and to keep paying for the connection even if the tenant leaves — a liability that can run into the billions. Applied Digital says it cannot carry those utility grid liabilities on its own balance sheet, so it wants the tenants — or the chipmakers whose hardware fills the buildings — to guarantee the costs before it signs.
The same caution is reshaping who gets space. Applied Digital is capping leasing capacity for junk-rated neocloud tenants such as CoreWeave — newer cloud companies built to rent out AI computing — and targeting a tenant mix of 70% investment-grade and 30% non-investment-grade. The report also notes Oracle already carries a $7 billion letter-of-credit obligation in Wisconsin after a utility there raised its credit threshold. Applied Digital shares closed Friday at $15.97, down 5.78%; Oracle closed at $125.35, down 1.38%; CoreWeave at $53.13, down 6.13%; Nvidia at $162.85, down 2.01%; AMD at $534.06, down 8.75%; and Meta at $641.69, up 2.90%.
The AI buildout's new bottleneck isn't chips — it's the power plug, and now the landlord wants the tenants to guarantee the bill.
Why It Matters
Power is the new bottleneck in the AI buildout, and this story is the clearest evidence yet. For two years the constraint everyone talked about was chips — could Nvidia make enough of them? Now the constraint is the grid: getting a giant datacenter connected can take years, and utilities are demanding guarantees before they spend money on upgrades. When the landlord starts asking the tenants to underwrite the power connection, the bottleneck has moved from the factory to the substation.
The tenant-mix target tells the same story from the other side. Investment-grade tenants are big, established companies with strong credit; non-investment-grade tenants are riskier borrowers. A 70/30 target says Applied Digital wants most of its rent coming from tenants that will still be paying in ten years — and it is willing to turn away business from the neoclouds that powered the last wave of datacenter demand. That is a real shift in who the AI buildout is for.
For the hyperscalers, the ask is manageable but telling. Oracle and Meta can afford to guarantee power costs; the question is whether they want to, and what they get in return — cheaper rent, better sites, priority in the queue. If the biggest tenants start guaranteeing grid costs as a matter of course, the economics of building datacenters change for everyone, and the developers that cannot get those guarantees will simply build less.
Analyst's Take
Our call is Mixed. The discipline is good news: a developer refusing to bet its own balance sheet on grid liabilities is a developer that has learned from the last cycle's mistakes, and a 70/30 mix of strong and weaker tenants is a sensible way to run a leasing business. But the fact that guarantees are needed at all is the bad news — it shows the costs and risks of the AI buildout are rising, and that even the biggest tenants are being asked to share risks that used to sit quietly with the developer.
The read is worst for CoreWeave. Applied Digital is explicitly capping space for junk-rated neoclouds, and CoreWeave is the name the report gives — that is why we tag it bearish in the per-ticker view. For Oracle and Meta, being asked for guarantees is a cost of doing business they can afford; the open question is whether they agree, and on what terms. For Nvidia and AMD, being asked case by case puts them in the odd position of guaranteeing the power for buildings full of their own chips.
Reader poll: will power guarantees slow the AI datacenter buildout? Vote: Yes, big slowdown, A little, No, it adapts, or Too early to tell.
Are you bullish or bearish on this story?
By The Numbers
FAQ
What is a financial guarantee in this story?
It is a promise to pay if someone else cannot. Applied Digital wants tenants such as Oracle and Meta — and chipmakers Nvidia and AMD — to promise they will cover power and utility-connection costs if a datacenter project runs into trouble, so the developer is not left holding the bill alone.
What is a letter of credit?
It is a bank's written promise to pay a set amount if the customer cannot. Oracle already carries a $7 billion letter-of-credit obligation in Wisconsin after a utility there raised its credit threshold — the utility wanted proof Oracle could pay before it agreed to connect the power.
What does 'junk-rated' mean?
It means a credit rating agency considers the borrower riskier than average — below what is called investment grade. Junk-rated companies can still borrow, but lenders charge them more, and landlords such as Applied Digital are more cautious about signing long leases with them.
Why is Applied Digital capping neocloud tenants?
Neoclouds are newer cloud companies built to rent out AI computing, and many are junk-rated. Applied Digital says it cannot carry utility grid liabilities on its own balance sheet, so it is limiting how much space goes to riskier tenants and targeting a mix of 70% investment-grade and 30% non-investment-grade tenants.
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Source: AI Weekly