Oracle Credit Fear Gauge Hits Highest Since 2009 on AI Bubble Fears
(Bloomberg) — A credit-risk gauge on Oracle Corp. debt closed at the highest level since the financial crisis after a flood of bond sales from tech giants amplified concerns that a bubble is forming in the artificial-intelligence industry.
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The cost of protecting Oracle’s debt against default reached its highest since March 2009 on Tuesday, based on end-of-the-day credit derivative prices in New York, rising to about 1.28 percentage point a year, according to ICE Data Services. The price rose nearly 0.03 percentage point from the day before, and has more than tripled from as low as 0.36 percentage point in June.
The gauge pared some of the price gains Wednesday, tightening as much as 0.024 percentage point.
Oracle has effectively sold tens of billions of dollars of bonds in recent months, through note sales in its own name and indirectly through projects that it’s backing. Those debt sales, paired with the fact that Oracle has weaker credit ratings than other cloud-computing giants, have made the company’s credit default swaps a key way for investors to protect themselves from an AI crash.
The rising cost of default protection reflects investor angst over the gap between the massive investments already made in AI and when investors can expect to see productivity gains and an increase in corporate profits. TD Securities’ Hans Mikkelsen warns that the boom echoes previous periods of market mania that have driven asset prices to extremes before falling back to earth.
“We’ve had these kinds of cycles before,” the strategist said in an interview. “I can’t prove that it’s the same, but it seems like what we’ve seen, for example, during the dot-com bubble.”
A representative for Oracle declined to comment.
Morgan Stanley cautioned in late November that Oracle’s growing debt pile risks driving the company’s credit default swaps even closer to 2 percentage points, just above its 2008 all-time high. The figure reached on Tuesday was the highest since a March 2009 level of 1.30 percentage point for a New York close.
Austin-based Oracle, the lowest rated of the leading hyperscalers, sold $18 billion of US high-grade corporate bonds in September and its data centers are linked to the largest deal for AI-infrastructure to come to market. Oracle’s artificial intelligence ambitions are closely linked to OpenAI and the database firm is counting on hundreds of billions of dollars in revenues from OpenAI over the next few years.
Oracle had about $105 billion of debt, including leases, as of the end of August, according to data compiled by Bloomberg. About $95 billion of its debt is now in the form of US bonds included in the Bloomberg US Corporate index. The company is the biggest issuer in the index outside of the banking industry.
Investors have been snapping up hedges on the BBB rated firm’s debt recently. Trading volume on Oracle’s CDS had ballooned to about $8 billion over the nine weeks ended Nov. 28, according to an analysis of trade repository data by Barclays Plc credit strategist Jigar Patel. That’s up from $350 million in the same period last year.
What Bloomberg Intelligence Says
Data-center infrastructure outlays amid seemingly insatiable AI demand are boosting hyperscalers’ borrowing, spurring valuation concerns. Yet this angst may be excessive if the biggest tech companies reduce shareholder payouts. Record tech debt issuance can extend into 2026, but might be tempered by the vast amount of cash on balance sheets and hundreds of billions of dollars available as free cash flow before buybacks and dividends.
— Robert Schiffman and Alex Reid, BI analysts
Debt Binge
Meanwhile, the spending spree to build out AI infrastructure and expand power capacity to meet its demands is expected to continue into next year. TD’s Mikkelsen sees US investment-grade bond sales hitting a record $2.1 trillion in 2026. Issuance this year is more than $1.57 trillion, according to data compiled by Bloomberg News.
Another flood of debt sales could overwhelm buyers, meaning companies will likely have to offer higher yields to entice investors. Mikkelsen is forecasting spreads reach a “base range” of 100 to 110 basis points over their benchmarks next year, up from 75 to 85 basis points in 2025.
Of course, sectors have gone on debt binges before — and not every one ends in disaster. The health-care industry’s multi-year debt wave in the prior decade provides a precedent for a sector adding substantial leverage to seize growth opportunities while retaining tighter-than-index spreads, Citigroup Inc. credit strategists Daniel Sorid and Mathew Jacob wrote in a note dated Nov. 24.
But corporate bond holders have limited ability to capture upside from an AI boom, the strategists said. And if companies keep spending heavily on keeping up with investments in artificial intelligence, money managers could see the credit quality of their debt investments deteriorate.
“Investors are becoming increasingly concerned about how much more supply may be on the horizon,” the Citigroup strategists wrote. “The impact of this hesitation on spreads for the sector has been quite notable.”
(Updates with CDS moves in third paragraph, trading volume data in 11th paragraph and BI details in 12th paragraph.)
