Wall Street credit traders are accelerating purchases of Oracle's credit default swaps (CDS), betting that the tech giant's aggressive AI infrastructure investments could trigger debt risks. This move is seen as an early warning signal for the most vulnerable link in the AI bubble, with Oracle's bond performance potentially becoming a critical indicator of whether the AI investment frenzy can sustain.
Latest data shows Oracle's five-year CDS costs have surged to near their highest levels since October 2023. The spread on its 4.9% coupon bonds maturing in 2033 widened by 26 basis points to 83 basis points.
This trend coincides with Oracle's preparation for a $38 billion bond issuance—the largest financing deal in AI infrastructure to date—to fund data centers in Texas and Wisconsin. These facilities are part of Oracle's $500 billion Stargate project, developed in partnership with OpenAI.
Market analysts warn that while the AI boom has driven U.S. stocks to record highs, Oracle's rapidly expanding debt could be where cracks first appear in the AI bubble narrative. With approximately $95 billion in outstanding debt, Oracle is already the largest non-financial corporate issuer in Bloomberg's high-grade index.
**Debt Expansion Accelerates** Oracle's borrowing pace is intensifying. Last month, the company raised $18 billion in corporate bonds—the second-largest high-grade deal this year. Morgan Stanley predicts Oracle's net adjusted debt could triple to about $290 billion by fiscal 2028 as AI investments grow.
**Credit Concerns Mount** According to ICE Data Services, Oracle's five-year CDS costs hover near 2023 peaks, signaling investor anxiety. Morgan Stanley advises buying Oracle's five-year CDS and bonds for protection, citing deteriorating credit conditions.
Nicholas Elfner of Breckinridge Capital notes that when major issuers like Oracle rapidly increase debt, it creates "interesting secondary market dynamics"—index trackers may overweight the bonds, while skeptics hedge with CDS.
**AI Bubble's Stress Test** With annual AI infrastructure spending projected at $200 billion, doubts persist about returns. Some investors compare the AI frenzy to the dot-com bubble, warning of overvaluation and weak profitability.
While Oracle's cloud/AI cash flows may mitigate default risks, market focus remains on the debt sustaining the AI bubble. As one observer noted: "Even AI bubbles can't inflate forever—credit 'wings' eventually melt." Oracle's CDS trajectory may reveal the first fractures in this narrative.