Oracle Scraps $7 Billion AI Chip Rental Deal With Tencent

By Amara Osei

Oracle has withdrawn a roughly $7 billion contract that would have let Tencent rent up to 100,000 advanced AI chips from its Southeast Asian data centers over five years. The Financial Times, citing multiple sources, reported that U.S. government officials conveyed serious concerns to Oracle about the deal, and the agreement collapsed shortly afterward.

Oracle, Tencent and the White House have not issued official positions on the report.

What did the deal contain?

The contract would have had Tencent rent computing capacity built on advanced AI chips from Oracle facilities in several Southeast Asian locations. Key terms:

• Up to 100,000 high-end AI chips rented over five years
• Total value of about $7 billion — the largest overseas semiconductor rental agreement Tencent had signed
• A 30% upfront payment condition

Had it been executed, Tencent would have gained indirect access to cutting-edge chips that U.S. export controls and Chinese regulations make difficult to obtain at home. The Financial Times did not specify which chip models were involved.

Why did it collapse?

Pressure came from both capitals. U.S. officials raised the security implications of the contract with Oracle. Separately, senior officials from Guangdong Province, where Tencent is headquartered, visited the company and demanded it expand its use of Chinese-made semiconductors. Beijing has been pressing its large technology firms to reduce reliance on foreign chips.

Chinese companies have expanded this so-called "backdoor leasing" — remotely renting computing resources from overseas data centers — to sidestep U.S. export controls and domestic supply shortages. The structure lets them borrow Nvidia's high-performance AI chips in third countries to train large-scale models. Overseas leasing remains permitted under current rules, but U.S. companies now face pressure to cut dependence on Chinese customers.

The takeaway in plain words: Washington and Beijing each pulled the deal apart from opposite ends.

How is the regulatory net tightening?

Since June, the U.S. Department of Commerce has applied its latest AI chip export controls in full to overseas subsidiaries of Chinese companies established in third countries such as Malaysia. Nvidia has also reportedly begun requiring its data center and cloud customers to sell at least 51% of their total service capacity to non-Chinese companies — a measure designed to block the overseas-data-center route.

Other major Chinese technology companies, including ByteDance and Alibaba, still maintain large-scale chip rental contracts with U.S. operators. The future scope of regulatory application is now a key open question. It remains unconfirmed whether U.S. authorities issued a specific administrative prohibition order, or how Tencent's already-paid advance will be refunded.

What does the loss mean for Oracle?

The withdrawal hits Oracle's customer diversification strategy. Oracle serves ByteDance in Asia through several data centers in Malaysia, previously stored U.S. user data for TikTok, and joined the consortium that acquired TikTok's U.S. business late last year. Analysts have long cited Oracle's heavy reliance on its cloud contract with OpenAI as a risk; the Tencent deal had been viewed as a way to ease that concentration.

The market reacted immediately. Oracle shares fell more than 2% in after-hours trading after the withdrawal was reported, compounded by U.S. midterm election results in which Democrats outperformed expectations and a candidate critical of data center expansion won a Texas gubernatorial primary. Oracle stock is down more than 34% since the start of the year.

Oracle's fundamentals remain large. The company is issuing $20 billion in new shares and corporate bonds to fund data center and infrastructure construction. Fiscal first-quarter revenue, announced in September, rose 30% year over year to $19.35 billion, beating Wall Street estimates of $19.14 billion. Oracle secured more than $30 billion in new AI cloud contracts that quarter, lifting remaining performance obligations to $664 billion. It raised fiscal 2027 adjusted net income and revenue forecasts and kept its $70 billion annual capital expenditure plan.

What happens to Tencent?

Tencent now faces a setback in securing overseas AI infrastructure. The company has narrowed the gap with leading Chinese models such as Alibaba's Qwen by improving its own model, Hunyuan, but analysts say the pace of expanding training and inference infrastructure could slow now that its path to advanced chips is blocked.

The case shows that the U.S.-China technology rivalry now makes corporate cooperation itself difficult — with Washington curbing China's AI access and Beijing pushing domestic chips, dual pressure is squeezing deals shut.