The credit default swap spread for Oracle has surged to an all-time peak, reflecting Wall Street's growing apprehension over the trend of major technology firms borrowing heavily to expand their AI infrastructure. According to ICE Data Services, Oracle's five-year credit default swap (CDS) spread increased by 7.2 basis points on Friday, closing at 198.18 basis points, a new historical high that surpasses the previous peak recorded in December 2008.
As large technology companies compete to accumulate debt for building AI infrastructure, Oracle has become a key benchmark for Wall Street to assess AI-related credit risk. Analysts from JPMorgan noted in a recent report that investor focus has shifted from revenue growth momentum to when Oracle can convert its infrastructure investments into sustained profitability and cash flow. The bank maintains a neutral rating on Oracle's bonds and suggests that their trading performance may not see consistent improvement before 2027.
The continued widening of Oracle's CDS spread, now exceeding levels seen during the global financial crisis, serves as the latest indicator of market concerns regarding credit risks associated with AI capital expansion. John Lloyd, Global Multi-Sector Credit Chief and Portfolio Manager at Janus Henderson Investors, commented, "Oracle's CDS has become a proxy for the credit market to gauge AI risk. The ongoing widening does not reflect a negative assessment of Oracle's fundamentals but rather the market's reaction to the scale of leverage required for AI infrastructure financing."
It is noteworthy that this CDS widening occurred against a macroeconomic backdrop of rising oil prices and falling stock prices, prompting investors to adopt a more cautious stance toward technology companies with high debt burdens.
To support its AI investments, Oracle has undertaken significant borrowing and is now the largest non-bank issuer in the Bloomberg U.S. Investment Grade Corporate Bond Index, with outstanding bonds totaling approximately $120 billion. In February of this year, Oracle completed a $25 billion bond issuance, setting a record for market demand, following an additional $18 billion bond sale last September. Beyond direct corporate borrowing, Oracle has also engaged in financing linked to several 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 in the investment-grade CDS market, with average weekly trading volume exceeding $830 million.
Although the widening CDS spread primarily reflects broader market concerns about AI financing models rather than a deterioration in Oracle's own credit fundamentals, investor patience has its limits. Credit analysts at JPMorgan explicitly stated that until Oracle demonstrates its ability to convert massive infrastructure investments into sustainable profitability, its bond performance is unlikely to see lasting improvement, with a potential turning point anticipated around 2027.
This outlook suggests that Oracle's credit risk premium may remain elevated for a considerable period. As more technology giants, including Meta and Alphabet, are incorporated into credit risk indices, market demand for pricing and hedging AI-related debt risks continues to expand.