MW Oracle's monster $25 billion debt financing points to anxieties around AI funding
By Joy Wiltermuth
Oracle plans to raise up to another $25 billion this year but said the sales would be either equity or equity-linked issuances
Oracle Corp.'s new monster $25 billion debt financing underscores the growing anxiety among bond investors about how the artificial-intelligence race will be funded.
The eight-part Oracle $(ORCL)$ bond deal, which comes just five months after an $18 billion bond offering, went off without a hitch, even as the company becomes a barometer for fears about debt-fueled AI spending. It helped that Oracle issued a statement a day before the bond deal indicating that it plans only a "single, one-time" bond issuance in early 2026 to "cover the year."
Equity and equity-linked issuances are expected to make up the rest of its anticipated $45 billion to $50 billion cash raise this year.
"We bought a bit of Oracle," said Bryce Doty, senior portfolio manager at Sit Fixed Income, of the new bond deal on Tuesday. Yet he remains cautious about the deluge of AI-related debt issuance expected this year and whether it will strain the investment-grade bond market.
"Even though they say they will fund half with equity," Doty said of Oracle's funding plans, "it's one thing to say that and another thing to get equity investors to go along with it."
Oracle didn't immediately respond to a request for comment. The company on Monday said it could raise up to $20 billion by selling common stock. Its shares were down 4.7% Tuesday and off by almost 41% from three months ago, according to FactSet.
The stock market has grown more finicky about which AI companies it thinks can dominate the market - and increasingly willing to punish AI plays based on earnings that are solid, but still not good enough.
Read: Nvidia and Oracle are flashing similar warning signs about the AI trade
A big test this year for megacap tech companies will be how well debt aimed at the AI build-out ends up being absorbed by the bond market.
Oracle's new bond deal sits in the top 10 U.S. investment-grade corporate bond deals by size, when looking back more than a decade to the sector's biggest issuance, $49 billion from Verizon Communications Inc. $(VZ)$ in 2013, according to Informa Global Markets.
Wall Street estimates vary in terms of expected AI-related bond supply this year, with BofA Global strategists recently pegging the range at $100 billion to $300 billion from the "hyperscalers," a group that includes Oracle, Amazon.com Inc. (AMZN), Alphabet Inc. $(GOOG)$, Meta Platforms Inc. (META) and Microsoft Corp. $(MSFT)$.
"That creates kind of an uphill battle for the bonds," Doty said.
Heavy supply might put further pressure on bonds issued by the megacap tech companies, which until last year's debt-issuance bonanza were something of a rarity on Wall Street.
Overall, U.S. investment-grade corporate spreads remain only fractionally above historic spreads over Treasurys overall, signaling that major corporations have no difficulty tapping the market for funding. But the below chart shows the premium that investors have been demanding for debt issued by several hyperscalers relative to industrial companies with similar credit ratings.
Investors are demanding a premium for bonds issued by megacap tech hyperscalers involved in the AI race.
"That's because the lack of clarity on hyperscaler borrowing was the key risk going into 2026," a team led by Yuri Seliger, credit analyst at BofA Global, wrote in a Monday note.
Spreads are the premium that investors earn on a particular bond relative to a benchmark rate, often the 10-year Treasury BX:TMUBMUSD10Y yield. Tighter spreads can point to high demand for bonds, fewer worries about defaults and lower borrowing costs for companies. They can also leave bond investors with less of a cushion if things don't work out as expected.
That's because spreads tend to quickly blow out in a crisis, as they did in the wake of the 2008 financial crisis and the pandemic that began in 2020. The spread on the ICE BofA BBB US Corporate Index was at 93 basis points earlier this week, signaling no similar concerns on the horizon.
Still, not everyone sees a smooth road ahead for bonds given the AI capex spending plans. "The level of spreads has us being careful about the amount of risk we have in our portfolios," David Del Vecchio, co-head of the U.S. investment-grade corporate bond team at PGIM Fixed Income, said Tuesday.
Del Vecchio came into the year feeling "pretty cautious" about heavy AI-related issuance, given expectations for increased merger and acquisition activity and capex spending that can weigh on corporate balance sheets and credit ratings.
To help gauge current jitters in the market, this BondCliQ Inc. chart shows the last 30 days of spread premium bond investors have been demanding on the 10-year bonds of five hyperscalers this year, with the green line tracking Oracle's bonds. Its spreads rallied this week but are still much higher than those of higher-rated Meta, Amazon, Alphabet and Microsoft.
A look at 10-year-bond spreads across several hyperscalers.
Oracle's premium reflects the fact that it carries a lot more investment-grade corporate debt than its peers, north of $120 billion, versus closer to $60 billion at Meta and Amazon, according to BondCliQ.
Most hyperscalers, however, are high-quality companies with strong balance sheets and "debt capacity" to spare, according to Nick Elfner, co-head of research at Breckinridge Capital Advisors.
Elfner expects there to be buying opportunities in tech bonds this year. But he's also watching capex spending forecasts closely as the rate of nonperforming loans relating to the AI push in the private-credit world pick up, which could eventually spook investors.
Yet so far in 2026, companies with investment-grade ratings have been issuing more "borrower-friendly" financings than anticipated, according to Del Vecchio, who noted some companies issuing equity along with debt.
"But it's pretty early in the cycle, and there's a lot of room for things to ultimately play out as feared," he said.
-Joy Wiltermuth
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(END) Dow Jones Newswires
February 03, 2026 15:12 ET (20:12 GMT)
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