Oracle Corp (NYSE:ORCL) is waking up to a problem no tech giant wants in an AI-mania market: credit risk headlines louder than growth headlines. Morgan Stanley issued a blunt warning Wednesday, flagging rising stress in Oracle's balance sheet as the company aggressively borrows to fund its hyperscale AI data-center expansion.
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The cost to insure Oracle's debt against default — the 5-year credit-default swap — jumped this week to 125 basis points, the highest in three years, and analysts say it could surge toward 2008 crisis peaks near 200 basis points if investor anxiety over the company’s finances keeps building.
In a research note, Morgan Stanley analysts Lindsay Tyler and David Hamburger walked away from their formerly bullish bond stance, writing: "We are closing the ‘buy bond' aspect of the basis trade while maintaining the ‘buy CDS protection' component." Translation: stop lending to Oracle, start betting on insurance.
When AI Ambition Meets a Swelling Balance Sheet
Oracle has raised an eye-watering $18 billion in bonds this year and has lined up roughly $56 billion in project and construction financing tied to AI data-center buildouts — the most capital-intensive infrastructure push in its history.
Morgan Stanley points to a widening funding gap, rising leverage risk, and what they call "obsolescence risk," a diplomatic way of saying: if hardware cycles move faster than Oracle's build schedule, the company could be investing in tech that turns stale before it fully pays out.
Against the backdrop of AI hypergrowth from Nvidia, Microsoft and Amazon, Oracle is playing catch-up — and catch-up is expensive.
Investors Don't Love Uncertainty
The credit market is sending a message the equity market hasn't fully priced in yet: funding an AI future isn't free, and lenders want to be compensated.
Morgan Stanley now expects CDS to breach 150 basis points in the near term and warns that a run toward 200bps, exceeding the 2008 GFC era peak, is possible without a clearer financing strategy.
Investor takeaway
Oracle isn't falling apart — but the market is demanding proof that this AI buildout won't break the balance sheet. AI is supposed to power the future, not trigger a flashback to 2008.
For now, debt investors are hedging — and Oracle shareholders should probably be listening.
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