AI Bubble "Barometer": The Market Eyes Oracle's Bonds—The "Weakest Link" in AI Leverage

AI Bubble "Barometer": The Market Eyes Oracle's Bonds—The "Weakest Link" in AI Leverage

```

Wall Street credit traders are accelerating their purchases of credit default swaps (CDS) on Oracle Corporation, betting that the tech giant's aggressive AI infrastructure investments could lead to debt risks. This trend is seen as an early warning signal for the most fragile link in the AI bubble, and the performance of Oracle’s bonds may serve as a key indicator of whether the overall AI investment frenzy can continue.

Latest data shows that the cost of Oracle’s five-year CDS has risen to its highest level since October 2023. The spread on the company’s 4.9% coupon bond due in 2033 has widened by 26 basis points to 83 basis points.

This trend comes as Oracle prepares to launch a $38 billion bond issuance, which will fund data centers in Texas and Wisconsin—so far the largest financing deal in the AI infrastructure sector. These data centers are part of the $500 billion Stargate project, a collaboration between Oracle and OpenAI.

Market analysts warn that although the AI boom is driving U.S. stocks to new highs, Oracle's rapidly swelling debt may be where the first cracks in the AI bubble narrative appear. Oracle currently has about $95 billion in outstanding debt, making it the largest non-financial corporate issuer in the Bloomberg high-grade index.

Sharp Expansion of Debt Scale

Oracle's borrowing pace is accelerating.

Last month, the company raised $18 billion in the corporate bond market, making it the second largest high-grade bond transaction this year. Oracle’s outstanding debt is now about $95 billion, establishing it as the largest non-financial corporate issuer in the Bloomberg high-grade index.

Morgan Stanley expects that as AI infrastructure investments proceed, Oracle’s net adjusted debt will reach about $290 billion in fiscal year 2028, nearly triple the current level of around $100 billion.

Aggressive expansion plans have triggered market concerns over Oracle’s credit quality.

According to ICE Data Services, the cost of five-year credit default insurance on Oracle’s debt is hovering near its highest level since October 2023. Investors are scrambling to protect their exposure.

Morgan Stanley believes that the recent deterioration and uncertainty surrounding Oracle’s credit status may push bondholders and lenders to further hedge. The bank suggests investors buy Oracle’s five-year CDS and five-year bonds.

Nicholas Elfner, co-head of research at Breckinridge Capital Advisors, said that when large corporate bond issuers rapidly increase their debt balances and carry greater weight in indexes, it may spark interesting trades in the secondary market.

Index trackers may increase their holdings of these bonds to maintain index weighting.

Meanwhile, investors with a negative credit outlook might buy CDS protection to hedge positions or bet on wider spreads.

Statistics show that AI infrastructure spending is expected to reach $200 billion annually, but whether such aggressive investments will yield corresponding returns remains unknown.

Some veteran investors have issued warnings, comparing the current AI boom to the Internet bubble of the early 21st century, reminding investors to beware of overvaluation and lack of profitability.

Market observers point out that Oracle's debt situation may become the key indicator to test the sustainability of the AI investment craze. Despite optimism about AI pushing U.S. stocks to record highs, there are persistent doubts about the sustainability of this rally.

Some traders and analysts believe the soaring CDS and Morgan Stanley’s debt forecasts are worth attention. Others are unconcerned about default risks, arguing that Oracle can generate cash flow from its cloud computing and AI deals and faces no real risk of default.

However, even the AI bubble cannot expand indefinitely, as the "wings" of credit that support the bubble will ultimately melt away.

Market attention is turning to the massive debt required to sustain the AI bubble. Closely monitoring Oracle’s CDS movement is essential—this may be where the first cracks in the AI bubble narrative appear.

 

Risk Warning and DisclaimerThe market has risks, and investment needs to be cautious. This article does not constitute personal investment advice, nor does it take into account the investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situations. Investing based on this article is at your own risk. ```