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Oracle's Debt Binge Has Wall Street Worried About a 2008-Style Flashback

MarketDash Editorial Team
9 days ago
Morgan Stanley is sounding the alarm on Oracle's aggressive borrowing spree to fund AI data centers, warning that credit risk indicators could soon hit levels not seen since the financial crisis.

Oracle Corp. (ORCL) has a problem that's unusual for a tech giant in the middle of an AI boom: its credit risk is making bigger headlines than its growth story. Morgan Stanley dropped a sobering warning Wednesday about mounting stress on Oracle's balance sheet as the company borrows aggressively to bankroll a massive AI data center buildout.

The numbers tell the story. Oracle's 5-year credit-default swap — essentially the cost to insure its debt against default — jumped to 125 basis points this week, the highest level in three years. And Morgan Stanley analysts think it could climb toward 200 basis points, the kind of territory last seen during the 2008 financial crisis, if investor concerns about Oracle's finances continue to intensify.

From Bullish to Bearish on Oracle Bonds

In their research note, Morgan Stanley analysts Lindsay Tyler and David Hamburger made a stark pivot from their earlier optimism. "We are closing the 'buy bond' aspect of the basis trade while maintaining the 'buy CDS protection' component," they wrote. In plain English: stop lending money to Oracle and start buying insurance against potential trouble.

That's a meaningful shift in tone from a major Wall Street player.

The Price of Playing Catch-Up in AI

Oracle has raised an eye-watering $18 billion in bonds this year alone. On top of that, it's lined up roughly $56 billion in project and construction financing earmarked for AI data center infrastructure — the most capital-intensive expansion in the company's history.

Morgan Stanley points to several red flags: a widening funding gap, rising leverage risk, and what they diplomatically call "obsolescence risk." That last one is particularly concerning — it's the worry that if hardware cycles move faster than Oracle's construction timeline, the company could end up investing billions in technology that's outdated before it generates returns.

While companies like Nvidia, Microsoft and Amazon race ahead in AI infrastructure, Oracle is scrambling to catch up. And catching up is expensive.

The Credit Market's Warning Signal

Here's what's interesting: the credit market is flashing warning signs that the stock market hasn't fully absorbed yet. Lenders want higher compensation for the risk of funding Oracle's AI ambitions, and that message is coming through loud and clear in the bond market.

Morgan Stanley now expects credit-default swaps to breach 150 basis points in the near term. Without a clearer financing strategy from Oracle, they warn a move toward 200 basis points — surpassing the 2008 financial crisis peak — is entirely possible.

What It Means for Investors

Oracle isn't collapsing, but the market wants proof that this ambitious AI expansion won't strain the balance sheet to a breaking point. Building the infrastructure for tomorrow's AI-powered world is supposed to be exciting, not a reminder of the 2008 crisis.

For now, debt investors are hedging their bets. If you're holding Oracle shares, that's probably worth paying attention to.

Back to News

Oracle's Debt Binge Has Wall Street Worried About a 2008-Style Flashback

MarketDash Editorial Team
9 days ago
Morgan Stanley is sounding the alarm on Oracle's aggressive borrowing spree to fund AI data centers, warning that credit risk indicators could soon hit levels not seen since the financial crisis.

Oracle Corp. (ORCL) has a problem that's unusual for a tech giant in the middle of an AI boom: its credit risk is making bigger headlines than its growth story. Morgan Stanley dropped a sobering warning Wednesday about mounting stress on Oracle's balance sheet as the company borrows aggressively to bankroll a massive AI data center buildout.

The numbers tell the story. Oracle's 5-year credit-default swap — essentially the cost to insure its debt against default — jumped to 125 basis points this week, the highest level in three years. And Morgan Stanley analysts think it could climb toward 200 basis points, the kind of territory last seen during the 2008 financial crisis, if investor concerns about Oracle's finances continue to intensify.

From Bullish to Bearish on Oracle Bonds

In their research note, Morgan Stanley analysts Lindsay Tyler and David Hamburger made a stark pivot from their earlier optimism. "We are closing the 'buy bond' aspect of the basis trade while maintaining the 'buy CDS protection' component," they wrote. In plain English: stop lending money to Oracle and start buying insurance against potential trouble.

That's a meaningful shift in tone from a major Wall Street player.

The Price of Playing Catch-Up in AI

Oracle has raised an eye-watering $18 billion in bonds this year alone. On top of that, it's lined up roughly $56 billion in project and construction financing earmarked for AI data center infrastructure — the most capital-intensive expansion in the company's history.

Morgan Stanley points to several red flags: a widening funding gap, rising leverage risk, and what they diplomatically call "obsolescence risk." That last one is particularly concerning — it's the worry that if hardware cycles move faster than Oracle's construction timeline, the company could end up investing billions in technology that's outdated before it generates returns.

While companies like Nvidia, Microsoft and Amazon race ahead in AI infrastructure, Oracle is scrambling to catch up. And catching up is expensive.

The Credit Market's Warning Signal

Here's what's interesting: the credit market is flashing warning signs that the stock market hasn't fully absorbed yet. Lenders want higher compensation for the risk of funding Oracle's AI ambitions, and that message is coming through loud and clear in the bond market.

Morgan Stanley now expects credit-default swaps to breach 150 basis points in the near term. Without a clearer financing strategy from Oracle, they warn a move toward 200 basis points — surpassing the 2008 financial crisis peak — is entirely possible.

What It Means for Investors

Oracle isn't collapsing, but the market wants proof that this ambitious AI expansion won't strain the balance sheet to a breaking point. Building the infrastructure for tomorrow's AI-powered world is supposed to be exciting, not a reminder of the 2008 crisis.

For now, debt investors are hedging their bets. If you're holding Oracle shares, that's probably worth paying attention to.