Oracle's AI Gamble Triggers Market Concerns as Debt Soars Past $100 Billion

Oracle hit hard in Wall Street's tech sell-off over its huge AI bet

Oracle has been hit harder than Big Tech rivals in the recent sell-off of tech stocks and bonds, as its vast borrowing to fund a pivot to artificial intelligence unnerved Wall Street. The US software group founded by Larry Ellison has made a dramatic entrance to the AI race, committing to spend hundreds of billions of dollars in the next few years on chips and data centers -- largely as part of deals to supply computing capacity to OpenAI, the maker of ChatGPT. The speed and scale of its moves have unsettled some investors at a time when markets are keenly focused on the spending of so-called hyperscalers -- big tech companies building vast data centers. Oracle shares are down 25 percent in the past month, nearly twice the fall of the next worst-performing hyperscaler, Meta. The slide has reversed more than $250 billion of gains in its market value when the Texas-based group disclosed its deals with OpenAI in September. A Financial Times index tracking the price of Oracle's debt has fallen about 6 percent since mid-September, significantly worse than any of its major peers. Oracle has prompted particular concern because the group shifted from business software to cloud computing later than its rivals. Its strategy has become more focused on an all-out bet on AI, pinned largely to the success of OpenAI. "This is a completely different business model to what investors prize in cloud services," said Alex Haissl at Rothschild & Co Redburn. "The deals look fantastic when you look at the revenue figures, but they are very capital-intensive so create very little value." Investors are concerned about lofty valuations and huge capital expenditure by a few large tech groups that could backfire if a handful of lossmaking AI start-ups such as OpenAI and Anthropic fail to deliver on their promises for the technology. Oracle shares fell 4.2 percent on Thursday as the NASDAQ tumbled 2.3 percent -- the latest in a series of sell-offs led by tech stocks. The stock recovered some of those losses on Friday. Oracle has said its deals with OpenAI would generate $300 billion of revenue between 2027 and 2032. Its executives say the rewards will justify the risks due to intense and accelerating AI demand, which far exceeds existing supplies of computing power. Its shares are still up 30 percent this year. Oracle's infrastructure business is forecast to increase revenues by more than 10 times by 2029, according to estimates compiled by S&P Visible Alpha. And the bulk of Wall Street analysts are bullish on its stock. But Oracle has been aggressive in tapping debt markets to rapidly build its capacity. The group has about $96 billion of long-term debt, up from $75 billion a year ago, according to Bloomberg data. Morgan Stanley forecasts this will soar to about $290 billion by 2028. Oracle sold $18 billion of bonds in September and is in talks to raise $38 billion in debt financing through a number of US banks. Ellison "is now way off the reservation in terms of how he's spending," said a short seller who has long tracked Oracle's stock but does not have an active bet against it. "The market is clearly saying it is no longer interested in companies burning endless cash on AI." Barclays analysts this week downgraded their rating of Oracle's debt from market neutral to underweight, warning that its large expenses on AI infrastructure had outpaced its free cash flow. Credit rating agency Moody's has also flagged up significant risks due to Oracle relying on a small number of AI companies. S&P Global warned that a third of Oracle's revenues will be tied to a single customer by 2028, referring to its reliance on OpenAI. "That is a huge liability and credit risk for Oracle. Your main customer, biggest customer by far, is a venture capital-funded start-up," said Andrew Chang, a director at S&P Global. OpenAI faces questions about how it plans to meet its commitments to spend $1.4 trillion on AI infrastructure over the next eight years. It has struck deals with several Big Tech groups, including Oracle's rivals. Of the five hyperscalers -- which include Amazon, Google, Microsoft, and Meta -- Oracle is the only one with negative free cash flow. Its debt-to-equity ratio has surged to 500 percent, far higher than Amazon's 50 percent and Microsoft's 30 percent, according to JPMorgan. While all five companies have seen their cash-to-assets ratios decline significantly in recent years amid a boom in spending, Oracle's is by far the lowest, JPMorgan found. JPMorgan analysts noted a "tension between [Oracle's] aggressive AI build-out ambitions and the limits of its investment-grade balance sheet." Analysts have also noted that Oracle's data center leases are for much longer than its contracts to sell capacity to OpenAI. Oracle has signed at least five long-term lease agreements for US data centers that will ultimately be used by OpenAI, resulting in $100 billion of off-balance-sheet lease commitments. The sites are at varying levels of construction, with some not expected to break ground until next year. Safra Catz, Oracle's sole chief executive from 2019 until she stepped down in September, resisted expanding its cloud business because of the vast expenses required. She was replaced by co-CEOs Clay Magouyrk and Mike Sicilia as part of the pivot by Oracle to a new era focused on AI. Catz, who is now executive vice-chair of Oracle's board, has exercised stock options and sold $2.5 billion of its shares this year, according to US regulatory filings. She had announced plans to exercise her stock options at the end of 2024.

Big Red borrows green, hopes AI puts it in the black

Cost of insuring against Oracle debt default spikes as September seems a long time ago opinion The weather's cooling, and so is Wall Street's patience with Oracle's AI makeover. Big Red is spending big, and the risk metrics aren't looking cozy. It all started so well in September. Despite lackluster profit and revenue figures, Oracle's shares climbed 30 percent when its first quarter results for FY2026 revealed its remaining performance obligations (RPOs) were stuffed with the promise of $455 billion, largely for its cloud infrastructure, briefly allowing co-founder and CTO Larry Ellison to claim the crown of the world's richest person. Jump forward a couple of months, and the chilly winds of winter are blowing in Oracle's direction. As Thanksgiving nears, financial traders have piled into Oracle's credit-default swaps, in which the buyer gets some insurance against a debt default. The price of the financial instruments insuring against defaults for five years has tripled for Oracle in recent months, an indication of a perceived increase in risk. Meanwhile, investors have flooded into the market, trading more than $5 billion (£3.8bn) in Oracle CDS since September, according to Jigar Patel, a Barclays analyst. In the same period last year, just $200 million was traded, according to Bloomberg. To build out its cloud infrastructure in support of the AI goldrush, Oracle has committed to significant investment. Capital spending -- largely on datacenters for AI -- is set to hit $35 billion in fiscal 2026, up from $21 billion in fiscal 2025. Shortly after it released its Q1 results, Oracle announced a $300 billion cloud compute contract with OpenAI, and KeyBanc analysts warned that Big Red may need to borrow roughly $100 billion over the next four years to build the datacenters required. Oracle has already raised $18 billion in bonds, and is likely to raise $38 billion more with more than $100 billion on its balance sheet. Credit agency Moody's kept Oracle's rating the same. Still, they introduced a new overhang owing to significant "counterparty risk" in Oracle's projected growth -- the possibility that another party fails to meet its obligations. At which point, it might be apt to point out that LLM provider OpenAI hasn't yet turned a profit, raising fair questions about its ability to pay Oracle. Oracle's net debt is now more than double its EBITDA (earnings before interest, taxes, depreciation, and amortization), a measure of operational profit. That number has doubled since 2021, and forecasters expect it to double again by 2030. Such is the reality of the situation, and the turning sentiment against AI generally, that some financial commentators have been mean enough to point out that, since announcing its deal with OpenAI, Oracle's market capitalization has fallen by more than the deal is reportedly worth. To be clear, Oracle's market capitalization is still roughly $620 billion, it has an investment-grade credit rating and rock-solid revenue from thousands of enterprise software customers. It is not going to default on its obligations anytime soon. And the cooling temperature is unlikely to affect the optimism of Ellison, the company's de facto leader. At a recent company event, he was spreading his belief that the AI Oracle is helping to sustain would help solve climate change and grow plentiful food. Nonetheless, it would be good to remember that, although the fall can be ablaze with orange, yellow and -- yes -- red, in time, the colors all eventually turn to brown. ®

Oracle's astonishing $300bn OpenAI deal is now valued at minus $74bn

It's too soon to be talking about the Curse of OpenAI, but we're going to anyway. Since September 10, when Oracle announced a $300bn deal with the chatbot maker, its stock has shed $374bn in market value: OK, yes, market caps don't work like that and the post headline is clickbait. But equivalents to Oracle shares are little changed over the same period (Nasdaq Composite, Microsoft, Dow Jones US Software Index), so neither is it entirely wrong. Oracle's "astonishing quarter" really has cost it as much as one Dell, or two eBays. Investor unease stems from Big Red betting a debt-financed data farm on OpenAI, as MainFT reported last week. We've nothing much to add to that report other than the below charts showing how much Oracle has, in effect, become OpenAI's US public market proxy: The theory goes that OpenAI is in a rush to discover AGI, and Oracle is uniquely able to scale the compute capacity it needs. Oracle promises the lowest upfront costs and fastest path to income generation among the hyperscalers because it's a data centre tenant rather than the landlord. Alternatively, Oracle doesn't have as much operating profit to burn as its competitors, so is throwing everything it can at supporting its one big customer in exchange for an IOU: At an analyst day last month in Las Vegas, Oracle said it was aiming for cloud computing revenue of $166bn by 2030: To get there, Oracle's capex budget for the current financial year ending May is $35bn. The consensus has annual capex levelling out at around $80bn a year in 2029, after which revenues continue to ramp: And from 2027, the majority of revenue would be coming from OpenAI: But Oracle's net debt is already at 2.5 times ebitda, having more than doubled since 2021, and it's expected to nearly double again by 2030. Cash flow is forecast to remain negative for five straight years: So while the OpenAI agreement has been more than written off the equity, the risk of unfunded expansion remains and the cost of hedging Oracle debt is at a three-year high. We need to add the usual warnings: Credit-default-swap liquidity isn't great; the increased demand for Oracle CDS comes after $18bn of bond sales in September; a CDS premium in the low 100 basis points isn't that exciting; and some firms taking the other side of the trade are no mugs. Still, pointy. Beyond the charts, a broader question relates to whether an OpenAI deal is still worth announcing. A few months ago, any kind of agreement with OpenAI could make a share price go up. OpenAI did very nicely out of its power to reflect glory, most notably in October when it took AMD warrants as part of a chip deal that bumped share price by 24 per cent. But Oracle is not the only laggard. Broadcom and Amazon are both down following OpenAI deal news, while Nvidia's barely changed since its investment agreement in September. Without a share price lift, what's the point? A combined trillion dollars of AI capex might look like commitment, but investment fashions are fickle.

What's Going on With Oracle? Its Stock Price Has Dropped More Than 40% in Two Months.

The company is enmeshed in the web of deals linking different parts of the AI complex together, which means that its pain could be felt by others. Betting big on artificial intelligence is proving to be a double-edged sword. Shares of Oracle (ORCL), the almost-50 year-old software company turned AI play, rallied furiously during the summer as investor enthusiasm for what could be the next transformative technology surged. Lately the company's stock has given up much of those gains, down more than 40% from its all-time high in September, more than other related plays including Meta Platforms (META), Palantir Technologies (PLTR) and Advanced Micro Devices (AMD), whose stocks declined at least 20% from their respective peaks. Now investors are looking at Oracle as the poster child for AI-related excess. Though concerns about AI valuations have been lingering for years, investors have recently started to pan stocks tied to the theme, weighing the amount companies are spending to develop the tech against the potential for future revenue. Oracle has come under increased scrutiny since it raised $18 billion in new debt last month to fund its infrastructure buildout, pushing its overall debt to over $100 billion. In January, Oracle announced that it was joining forces with ChatGPT maker OpenAI and Japanese tech giant Softbank on a $500 billion project, called Stargate, to develop AI infrastructure in the U.S. Oracle's quarterly earnings report in early September blew past Wall Street expectations, sending the stock soaring 36% in one day and briefly making co-founder and Executive Chairman Larry Ellison the world's richest person. A few weeks later, however, the company announced that longtime CEO Safra Catz would be replaced as CEO, and the stock has been declining ever since. Meanwhile, traders have started to pile into Oracle's credit-default swaps as a way to both hedge and bet against the AI trade, according to a recently published story by Bloomberg. Credit default swaps are derivative contracts that serve as a kind of insurance against the possibility that a borrower will default on its debt obligations. Consensus capital expenditures for AI hyperscalers, including Amazon (AMZN), Google (GOOGL), Meta, Microsoft (MSFT) and Oracle have risen to $533 billion now from $467 billion at the start of the third-quarter earnings season, according to Goldman Sachs. Oracle is also a major part of the web of deals between AI software makers, chip companies and cloud operators, whose circular deals -- possibly indicating more self-dealing than representative of organic demand -- have raised eyebrows. The Wall Street Journal reported that a large chunk of the outsize revenue backlog unveiled in its September earnings report was from an OpenAI deal. "The feedback loops created by the revenue and equity relationships between some of the largest U.S. public companies and smaller AI firms increase the risk that stress in one part of the AI ecosystem affects investors across the AI complex," Goldman analysts led by Ryan Hammond said in a report published earlier this week.

Will Moody's and S&P reclassify Oracle's bonds as junk debt? Key points investors need to know

Oracle's credit risk is rising fast as its $300 billion AI contracts and massive cloud build-out push debt above $100 billion and toward 4x EBITDA. Free cash flow is still negative. Moody's rates Oracle at Baa2 with a negative outlook, citing leverage and counterparty risk tied to OpenAI. S&P holds BBB with a negative outlook and warns spending could drag ratings near BBB-. Barclays cut Oracle to underweight, expecting pressure toward junk territory. Bond yields are climbing. CDS spreads are spiking. Markets see a possible downgrade by 2026 if cash flow and execution slip. Oracle credit risk is rising as the company pours billions into AI infrastructure. Investors are watching closely as debt climbs and free cash flow stays under pressure. Moody's and S&P have both issued negative outlooks, warning that Oracle's bonds could face trouble if spending outpaces earnings. Moody's rates Oracle at Baa2, one notch above junk, with a Negative outlook. S&P rates the company at BBB, also investment-grade, but with a Negative outlook after its September assessment. Both agencies have not downgraded Oracle to speculative grade yet. But they warn the financial pressure is rising faster than earlier projected. The market is reacting to those signals well ahead of any formal rating change. The company is taking on debt at a scale not seen in Big Tech. Oracle's adjusted leverage is projected to move toward 4× EBITDA, according to separate analyses from both agencies. Free cash flow remains weak due to historic levels of AI-related capital expenditure. Oracle increased FY 2026 CapEx guidance from $25 billion to almost $35 billion. S&P projects spending may surge above $60 billion by 2028. The up-front cost structure is outpacing revenue and cash generation, creating a widening gap that is now material to credit stability. Bond investors have begun to price in deeper risk. Oracle's latest 30-year bonds are trading near 65 cents on the dollar, signaling a sharp discount to par. Credit-default swaps have spiked to two-year highs, indicating growing concern about future refinancing. Debt tied to longer-dated maturities shows greater weakness than short-cycle corporate paper. Market behavior reflects expectations of heavier borrowing ahead and uncertainty around the payback timeline of AI infrastructure deals. Investors are now demanding wider spreads as compensation for rising downside risk. The tech giant recently signed $300 billion in AI contracts, one of the largest investments in corporate history. While the deals could transform Oracle into a cloud and AI powerhouse, analysts say relying on a few major clients adds high counterparty risk. Any hiccup from these partners could hit revenue hard. Oracle is also expanding its data centers at unprecedented scale, pumping billions into long-term growth. The payoff is expected to be huge, but the near-term picture shows adjusted leverage approaching 4x. That means debt is growing faster than earnings, putting pressure on the company's investment-grade status. Free cash flow remains negative for the moment, adding to investor concern. Despite strong revenue projections, Oracle's heavy spending on AI and cloud infrastructure could make it hard to service debt efficiently. Analysts warn that if cash flow doesn't turn positive soon, a downgrade could become a real risk. The market is reacting. Oracle bonds have seen rising yields and some price pressure. Investors are balancing the high reward of AI leadership against the short-term financial stress. Execution of AI contracts, cash flow trends, and debt ratios are now under intense scrutiny. Capital expenditures are projected to climb sharply in fiscal 2026. Oracle's plan could push capex to nearly $27 billion, roughly 40% of projected revenue. Rating agencies note that if debt and spending continue to outpace cash inflows, Oracle could move closer to "junk" status in the future. A downgrade to speculative grade would be triggered if leverage stays above 4×, if free cash flow weakens further, or if AI investments fail to generate expected revenue momentum. Ratings analysts want consistent evidence of improvement rather than quarter-to-quarter volatility. That means Oracle will likely face heightened scrutiny through 2026. Any earnings miss, spending spike, or contract disruption could force the rating agencies to act. For now, Oracle remains investment-grade. But the path forward is narrow and closely tied to execution on its AI infrastructure expansion. Still, Oracle is betting on long-term dominance in AI and cloud services. The potential upside is enormous if contracts perform and revenue grows as expected. But investors must watch every quarter closely. Even small setbacks in AI deployment or client execution could intensify credit pressure. Oracle has made huge bets on artificial intelligence, investing billions into cloud infrastructure and AI contracts. While these moves could pay off in the long run, they are also raising serious concerns about the company's financial stability. Both Moody's and S&P have flagged potential credit risks, warning that Oracle's debt could face pressure if its growth does not match expectations. Investors are now asking a critical question: could Oracle's bonds be reclassified as junk debt? Currently, Oracle remains in the investment-grade category, but signs of stress are becoming more visible. The company's massive AI contracts and growing debt levels are under close scrutiny. Moody's and S&P both highlighted the counterparty concentration risk in Oracle's multi-hundred-billion-dollar deals, including the widely reported OpenAI contract. Analysts warn Oracle could derive nearly one-third of revenue from that single customer by 2028 if current projections hold. That dependency raises execution risk, especially if cloud demand slows or contractual build-outs face delays. Any disruption would hit Oracle's financial model at the same moment its AI infrastructure costs peak. That makes the downgrade debate more urgent. Oracle recently signed $300 billion worth of AI contracts, marking one of the largest investments in tech infrastructure in recent years. While these deals can drive revenue growth in the long term, they also carry significant risks. A key concern is the company's reliance on a small number of clients. If one or more major partners underperform or delay projects, Oracle's expected cash flows could shrink, putting pressure on its ability to manage debt. At the same time, Oracle is expanding data centers at an unprecedented scale. This requires massive spending upfront, with the hope that revenue from these AI contracts will eventually justify the costs. However, there is no guarantee that returns will match the pace of spending. Financial analysts also warn that Oracle's leverage ratio -- the amount of debt compared to earnings -- could approach 4x, increasing the risk of credit stress. While the company is still in investment-grade territory, sustained high leverage could lead rating agencies to consider downgrades in the future. Finally, Oracle's free cash flow remains a concern. Negative cash flow over multiple quarters can strain the company's ability to service debt, even if future AI revenue materializes as expected. Moody's and S&P have both put Oracle's credit under a negative outlook, signaling that the company's bond ratings could be at risk. Currently, Oracle holds Baa2 and BBB ratings, just above the threshold for speculative or "junk" status. The agencies are worried about high capital expenditure and heavy investment in AI infrastructure. Oracle plans to spend billions in the coming years to expand cloud capabilities, which could outpace near-term revenue growth. Additionally, analysts are watching Oracle's debt-to-earnings ratio closely. If debt grows faster than earnings, the risk of downgrade increases. A rating drop would raise borrowing costs, making future investments more expensive and potentially slowing the company's growth plans. Another concern is the long payback period for Oracle's AI investments. Unlike traditional software products, these infrastructure projects take years to generate significant revenue. During this time, the company must manage debt obligations and operational costs, creating short-term pressure on finances. Overall, rating agencies see a high-risk, high-reward scenario: Oracle could emerge as a leader in AI, but only if it manages debt, cash flow, and customer execution effectively. 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Oracle's AI Strategy Shake-Up Sparks Market Jitters As Shares Plunge 25% - Oracle (NYSE:ORCL)

Oracle Corporation (NYSE:ORCL) has seen a significant market reaction following its bold shift towards artificial intelligence (AI), resulting in a 25% drop in shares over the past month. What Happened: Oracle's ambitious entry into the AI sector, fueled by substantial borrowing, has caused unease on Wall Street. The tech behemoth has pledged to invest hundreds of billions in the next few years on chips and data centers, primarily to bolster computing capacity for OpenAI, the creator of ChatGPT. As reported by the Financial Times, the magnitude and speed of Oracle's strategic shift have caused investors to question, especially at a time when the spending patterns of large tech firms building massive data centers, or hyperscalers, are under scrutiny. Oracle's shares have taken a 25% hit in the past month, almost twice the decline of the next worst-performing hyperscaler, Meta. This downturn has erased over $250bn in market value gains that Oracle had accumulated after announcing its OpenAI deals in September. Also Read: Top Analyst Says Oracle's 'Irresponsible' AI Bet Differs From 'Healthy' Microsoft And Google Demand Oracle's delayed switch from software to cloud computing, coupled with its hefty wager on AI, has raised particular alarm. Why It Matters: Despite the market's response, Oracle remains confident that the potential benefits will outweigh the risks, pointing to the rapidly increasing demand for AI, which far exceeds the current supply of computing power. Oracle's bold move into AI represents a significant shift in strategy, and the market's reaction underscores the risks associated with such a pivot. However, with the growing demand for AI and the potential rewards on offer, Oracle's gamble could yet pay off. Read Next Oracle Stock Soars Despite Missing Q1 Estimates: Here's Why ORCLOracle Corp$223.620.35%OverviewMarket News and Data brought to you by Benzinga APIs

The most important chart in AI today? Oracle's default swaps blow out By Investing.com

Investing.com -- Shares in Oracle Corporation (NYSE:ORCL) are down as much as 37% from the record high set in September as investors turned wary of its debt-financed jump into artificial-intelligence infrastructure, with bond and credit-default‐swap (CDS) markets flashing caution. In layman's terms, a CDS is insurance against a company going bust. When the price of that insurance jumps, investors are getting nervous. Get premium news and insight, AI stock picks, and deep research tools by upgrading to InvestingPro - get 55% off today Investors dumped Oracle bonds after a report that the company plans to add about $38 billion in debt to fund its cloud and AI build-out. The move drove weaker bond prices and higher yields, with market participants pointing to stress in a previously stable investment-grade issuer. Oracle 5-year CDS (Source: Bloomberg) Traders have accelerated hedging via 5-year CDS contracts, signalling mounting concerns about credit risk in the AI arms race. Market players say the underlying catalyst is the scale and speed of AI infrastructure investment across the tech sector. Wall Street analysts fear that borrowing to fuel the build-out may strain cash flows, delay returns and heighten credit risk even for large-cap names. A recent fund-manager survey found that over half of respondents view AI spending as the top market risk. However, not everyone is very concerned. "Oracle is structuring AI compute contracts as non-cancelable, non-modifiable, take-or-pay contracts ensuring stable cash flows and cost visibility," BofA research analyst Brad Sills wrote in a client note last month. For Oracle, the shift is material. The company has for decades drawn strength from its enterprise-software and database franchises. Now it is pivoting heavily into data-centres and cloud infrastructure tailored for AI workloads, financed with freshly issued debt. "Oracle's entry into AI compute marks its transition into a fourth hyperscaler, as accelerated capex and GPU density bring the company's footprint inline with hyperscaler peers," Sills said. The total addressable market (TAM) for AI infrastructure is estimated by IDC at $200 billion in annual spend by 2028; a 42% 5yr CAGR. While the mounting borrowings prompted some bond buyers and lenders to tighten terms or demand higher compensation, equity investors are taking notice. Rising credit spreads and bond yields have weighed on sentiment, adding to concerns about execution risks and the timing of returns from AI investments. Some market‐watchers now treat Oracle's credit-market performance as a proxy for the broader AI-infrastructure boom's financial health. While Oracle remains investment grade and its default risk remains low in absolute terms, the warning lights flashing in both its debt and derivatives markets are rare for a company of its size and standing.