AI Debt Risk Indicator: Oracle Bond CDS Hits Record High

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Oracle Corporation’s credit default swap spread has risen to a historic peak, reflecting Wall Street’s deepening concerns over tech giants borrowing to expand AI infrastructure.

According to ICE Data Services, Oracle’s five-year CDS spread closed up 7.2 basis points at 198.18 basis points on Friday, a new all-time high, surpassing the previous peak set in December 2008.

As major technology companies race to borrow and build AI infrastructure, Oracle has become Wall Street's core benchmark for measuring AI credit risk.

In a research report last Friday, JPMorgan analysts pointed out that investors have shifted their focus from revenue growth momentum to when Oracle can turn its infrastructure investments into stable, sustained earnings and cash flow. The bank gives Oracle bonds a neutral rating and believes their trading performance may be difficult to continuously improve before 2027.

CDS Hits New High: Credit Risk Signal Amid AI Borrowing Surge

The sustained widening of Oracle’s CDS spread has surpassed the highs during the global financial crisis, becoming the latest anecdote for the market’s concern about AI capital expansion credit risks.

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

"Oracle’s CDS has become a proxy indicator for measuring AI risk in the credit market. The continued widening does not mean a negative judgment on Oracle’s fundamentals, but rather reflects the market’s view of the leverage required for AI infrastructure financing."

Notably, this CDS widening has occurred against a macro backdrop of rising oil prices and falling stock prices, making investors increasingly cautious about risk exposure to high-debt tech companies.

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

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

Its outstanding bonds total about $120 billion.

In February this year, Oracle completed a $25 billion bond issuance, setting a record for market demand; in September last year, the company issued another $18 billion in bonds. Besides direct company borrowing, Oracle is also involved in indirect financing with multiple data center projects.

Regarding liquidity, Nicholas Godec, Head of Fixed Income Tradable Products and Commodities at S&P Dow Jones Indices, citing DTCC data, said Oracle swap contracts are the most liquid in the investment grade CDS market, with average weekly trading volume over $830 million.

Profitability Conversion Timeline Is Key: Market Awaits 2027

Although CDS widening mainly reflects market concerns about AI financing models and not Oracle’s own credit fundamentals, investors’ patience is limited.

JPMorgan’s credit analysts clearly stated that unless Oracle can prove it can turn large-scale infrastructure investments into sustainable profitability, its bond performance is unlikely to see ongoing boosts, with this turning point expected to occur in 2027 at the earliest.

This assessment means Oracle’s credit risk premium may remain elevated for quite a long period.

As more tech giants like Meta and Alphabet are included in credit risk indices, the market’s pricing and hedging demand for AI debt risk continues to expand.

Risk Disclosure and DisclaimerThe market involves risk, and investments require caution. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment goals, financial conditions, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their particular situation. Investments made accordingly are at the user's own risk. ```