AI Debt Risk Indicator: Oracle Bond CDS Hits Record High

Oracle Corporation’s credit default swap spreads have risen to a historical peak, reflecting Wall Street’s growing concerns over the trend of tech giants borrowing to expand AI infrastructure.

According to ICE Data Services, Oracle’s five-year credit default swap (CDS) spread closed Friday up 7.2 basis points to 198.18 basis points, setting a new historical high, surpassing the previous high of December 2008.

In the context of large tech companies competing to borrow for building AI infrastructure, Oracle has become the central benchmark for Wall Street to measure AI credit risk.

JPMorgan analysts noted in a report last Friday that investor focus has shifted from revenue growth momentum to when Oracle can convert its infrastructure investments into sustainable profits and cash flow. The firm maintains a neutral rating on Oracle’s bonds, believing that the trading performance of its bonds may struggle to show sustained improvement before 2027.

CDS Reaches New High: Credit Risk Signals Amid AI Borrowing Wave

The continuous widening of Oracle’s CDS spreads has surpassed the peak during the global financial crisis, becoming the latest note of concern in the market regarding credit risk from AI capital expansion.

John Lloyd, Global Head of Multi-Sector Credit and Fund Manager at Janus Henderson Investors, stated:

“Oracle’s CDS has become a proxy indicator for measuring AI risks in the credit market. The continued widening does not negate Oracle’s fundamentals but reflects the market’s perception of the leverage needed for financing AI infrastructure.”

It is noteworthy that this widening of CDS occurs against the backdrop of rising oil prices and falling stock prices, with investors becoming increasingly cautious about the risk exposure of tech companies with high debt burdens.

Massive Debt: Largest Non-Bank Issuer in the Investment-Grade Bond Market

Oracle has borrowed heavily to support its AI investments and is now the largest non-bank issuer in the Bloomberg U.S. Investment-Grade Corporate Bond Index.

Its bond stock is approximately $120 billion.

In February of this year, Oracle completed a $25 billion bond issuance, setting a record for market demand; in September last year, the company issued an additional $18 billion in bonds. In addition to direct borrowing at the corporate level, Oracle has also engaged in associated financing with multiple data center projects.

In terms of liquidity, Nicholas Godec, Head of Fixed Income Tradable Products and Commodities at S&P Dow Jones Indices, cited DTCC data indicating that Oracle’s swap contracts are the most liquid products in the investment-grade CDS market, with an average weekly trading volume exceeding $830 million.

Profit Conversion Timeline Becomes Key: Market Awaits 2027

Although the widening of CDS primarily reflects market concerns about the overall AI financing model rather than a deterioration in Oracle’s own credit fundamentals, investors’ patience still has its limits.

JPMorgan credit analysts explicitly pointed out that until Oracle can demonstrate the ability to effectively convert large-scale infrastructure investments into sustainable profitability, its bond performance is unlikely to receive ongoing boosts, with this inflection point expected to occur no earlier than 2027.

This assessment implies that Oracle’s credit risk premium may remain elevated for a considerable period.

As more tech giants like Meta and Alphabet are also being incorporated into credit risk indices, the market’s pricing and hedging demand for AI debt risk continue to expand.

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