AI Trend Indicator! Oracle bond CDS rises to historic high

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Oracle Corporation's credit risk indicators have risen to historical highs, reflecting deep market concerns about the sustainability of the AI investment boom.

According to ICE Data Services, Oracle’s credit default swap (CDS) spread increased by about 10 basis points to 198.23 on Friday, marking a historic closing record and surpassing the previous peak of 198.18 set on March 27.This means the cost investors must pay to protect Oracle’s debt from default has risen to an unprecedented level.

Meanwhile, the release of the new AI model Kimi K3 has sparked concerns about the competitiveness of existing AI products, putting pressure on technology stocks overall. The convergence of these signals has further deepened market doubts over Oracle’s aggressive capital expenditure strategy and the outlook for returns on its AI investments.

Downgraded Rating, Negative Free Cash Flow

Oracle is currently in a cycle of large-scale data center construction, and operating free cash flow has turned negative.Last week, S&P Global Ratings downgraded Oracle’s credit rating to BBB-, just one notch above junk status. According to Bloomberg, S&P stated that the agency has consistently underestimated the upfront expenditure Oracle needs for its AI investments.

The downgrade has directly pushed up Oracle’s financing costs and accelerated worries in the bond market over its credit profile.

Large Bond Amount, Market Impact Cannot Be Ignored

Oracle holds around $117 billion in bonds within the Bloomberg US Investment Grade Corporate Bond Index, making it the largest non-financial company in the index. Such scale means that any change in Oracle’s credit risk will have a significant spillover effect on the entire investment grade credit market, increasing pressure on institutional investors’ portfolio exposure management.

Friday’s broad decline in technology stocks provided a more macro background for the rise in Oracle’s credit risk. The launch of the AI model Kimi K3 has fueled market concerns,with opinion that it may pose competitive threats to existing products from companies like OpenAI, leading to doubts over the profit outlook for firms making heavy bets on AI infrastructure. As a major player in AI data center investment, Oracle has been particularly affected.

The record high CDS spread occurred simultaneously with the stock market decline, indicating that investors in both stock and bond markets are synchronously reassessing the risk premium of the AI investment narrative.

Risk Warning and DisclaimerThe market carries risks; investment must be cautious. This article does not constitute personal investment advice and does not take into account individual users’ specific investment objectives, financial circumstances, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their particular situation. Investments made accordingly are at one’s own risk. ```