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Oracle's Debt-Fueled AI Gamble Faces Reckoning as Global Yields Surge to 16-Year High

MarketDash Editorial Team
7 hours ago
Oracle's earnings report could shake up the entire AI trade after its shocking debt binge, while global bond yields hit levels not seen since 2008 just as the Fed prepares to cut rates. The company went from conservative darling to high-risk AI play in one quarter.

Oracle's Dramatic Transformation

Oracle Corp (ORCL) reports earnings after the close today, and the stakes couldn't be higher. This isn't just about one tech giant's quarterly results. It's become a referendum on the debt-fueled AI infrastructure boom that's been captivating investors.

Here's what happened: Oracle's stock spiked after last quarter's earnings when the company announced a jaw-dropping $500 billion backlog for its data centers. That's the kind of number that makes investors sit up and take notice. But then reality started to intrude.

First, it emerged that somewhere between $300 billion and $350 billion of that backlog came from a single customer: ChatGPT maker OpenAI. Then came the revelation that the deal involved circular financing with Nvidia Corp (NVDA). The stock couldn't maintain its spike and fell back.

Under normal circumstances, Oracle likely would have pulled back to the $262-$293 range before resuming its climb. But then came the unexpected twist: Oracle went on what can only be described as an extreme borrowing binge. In one quarter, the company transformed from a conservative, high-potential stock into a high-risk, high-reward proposition.

Today's earnings report carries enormous weight. Depending on the numbers and management commentary, the stock has the potential to surge $80 or plummet $50. And Oracle's movement won't happen in isolation. The entire AI trade is watching, particularly data center plays like IREN Ltd (IREN), Nebius Group NV (NBIS), CoreWeave Inc (CRWV), and Cipher Mining Inc (CIFR).

The Bond Market's Unusual Signal

While Oracle drama unfolds, something strange is happening in the bond market. Global bond yields are hitting 16-year highs today. Read that again: 16-year highs. We haven't seen yields this elevated since 2008.

The timing makes this particularly fascinating. The Federal Reserve is highly likely to cut interest rates at today's 2pm ET meeting, with Fed Chair Powell holding a press conference at 2:30pm ET. It's unusual to see yields surging right before a rate cut, but rising yields in Japan have been reverberating through global bond markets.

The consensus expectation is that the Fed will accompany its rate cut with hawkish commentary, essentially saying "we're cutting, but don't get too comfortable." There are also likely to be dissents in both directions among Fed members.

Here's the interesting part: despite all the negative crosscurrents and market anxiety, history offers a compelling counterpoint. The last 20 times the Fed cut interest rates when the stock market was within 2% of its all-time high, the market went higher over the following 12 months in 100% of cases. The reason is straightforward: some of the excess liquidity the Fed provides inevitably flows into stocks. Of course, this is just one factor among many that investors should weigh.

China's Uncomfortable AI Progress

It may not be politically comfortable to acknowledge, but the evidence suggests China is running neck-and-neck with the United States in the AI race. The U.S. maintains a significant edge through Nvidia's Blackwell chip, which represents the most capable AI processing technology available. The U.S. has banned exports of Blackwell chips to China.

So how is China keeping pace? According to a new report, China appears to be circumventing export restrictions through chip smuggling. The latest DeepSeek AI model was reportedly trained on smuggled Blackwell chips. This isn't just a geopolitical curiosity; it has real implications for investors trying to understand the competitive landscape in AI development.

Following the Magnificent Seven Money Flows

Most portfolios have become heavily concentrated in the Magnificent Seven tech stocks, making early daily money flows in these names increasingly important to monitor.

In early trading, money flows are positive in Amazon.com, Inc. (AMZN) and Tesla Inc (TSLA).

Money flows are neutral in Apple Inc (AAPL) and Nvidia (NVDA).

Money flows are negative in Microsoft Corp (MSFT), Alphabet Inc Class C (GOOG), and Meta Platforms Inc (META).

Money flows are mixed in SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series 1 (QQQ).

Commodities and Crypto Updates

In oil markets, API crude inventories showed a draw of 4.8 million barrels versus consensus expectations of a 1.7 million barrel draw. The most popular oil ETF for tracking crude is United States Oil ETF (USO).

In cryptocurrency markets, a major international bank that has been extremely bullish on bitcoin has dramatically cut its price targets. The bank now expects Bitcoin (BTC) to reach $100,000 in 2025 (down from $200,000), $150,000 in 2026 (down from $300,000), and $225,000 in 2027 (down from $400,000). Bitcoin is currently range bound.

Investment Strategy Considerations

In this environment, consider maintaining good very long-term existing positions. Based on individual risk tolerance, a protection band consisting of cash, Treasury bills, or short-term tactical trades along with hedges can help you participate in upside while managing downside risk.

You can determine your protection bands by combining cash with hedges. The high end of the protection range is appropriate for older or more conservative investors. The low end suits younger or more aggressive investors. If you don't hedge, your total cash level should exceed the stated minimums but remain significantly below what you'd hold if combining cash with hedges.

A protection band of 0% would signal very bullish positioning with full investment and no cash. A protection band of 100% would indicate very bearish positioning requiring aggressive protection through cash and hedges or aggressive short selling.

It's worth emphasizing: you cannot take advantage of new opportunities if you're not holding sufficient cash. When adjusting hedge levels, consider using partial stop quantities for individual stock positions (not ETFs), wider stops on remaining quantities, and allow more room for high beta stocks that move more than the broader market.

The Traditional 60/40 Portfolio Question

For investors following the traditional 60% stocks and 40% bonds allocation, probability-based risk-reward analysis adjusted for inflation does not currently favor long-duration strategic bond allocation.

Those committed to the 60/40 framework should consider focusing exclusively on high-quality bonds with durations of five years or less. Investors willing to add sophistication might consider using bond ETFs as tactical positions rather than strategic holdings at this time.

Back to News

Oracle's Debt-Fueled AI Gamble Faces Reckoning as Global Yields Surge to 16-Year High

MarketDash Editorial Team
7 hours ago
Oracle's earnings report could shake up the entire AI trade after its shocking debt binge, while global bond yields hit levels not seen since 2008 just as the Fed prepares to cut rates. The company went from conservative darling to high-risk AI play in one quarter.

Oracle's Dramatic Transformation

Oracle Corp (ORCL) reports earnings after the close today, and the stakes couldn't be higher. This isn't just about one tech giant's quarterly results. It's become a referendum on the debt-fueled AI infrastructure boom that's been captivating investors.

Here's what happened: Oracle's stock spiked after last quarter's earnings when the company announced a jaw-dropping $500 billion backlog for its data centers. That's the kind of number that makes investors sit up and take notice. But then reality started to intrude.

First, it emerged that somewhere between $300 billion and $350 billion of that backlog came from a single customer: ChatGPT maker OpenAI. Then came the revelation that the deal involved circular financing with Nvidia Corp (NVDA). The stock couldn't maintain its spike and fell back.

Under normal circumstances, Oracle likely would have pulled back to the $262-$293 range before resuming its climb. But then came the unexpected twist: Oracle went on what can only be described as an extreme borrowing binge. In one quarter, the company transformed from a conservative, high-potential stock into a high-risk, high-reward proposition.

Today's earnings report carries enormous weight. Depending on the numbers and management commentary, the stock has the potential to surge $80 or plummet $50. And Oracle's movement won't happen in isolation. The entire AI trade is watching, particularly data center plays like IREN Ltd (IREN), Nebius Group NV (NBIS), CoreWeave Inc (CRWV), and Cipher Mining Inc (CIFR).

The Bond Market's Unusual Signal

While Oracle drama unfolds, something strange is happening in the bond market. Global bond yields are hitting 16-year highs today. Read that again: 16-year highs. We haven't seen yields this elevated since 2008.

The timing makes this particularly fascinating. The Federal Reserve is highly likely to cut interest rates at today's 2pm ET meeting, with Fed Chair Powell holding a press conference at 2:30pm ET. It's unusual to see yields surging right before a rate cut, but rising yields in Japan have been reverberating through global bond markets.

The consensus expectation is that the Fed will accompany its rate cut with hawkish commentary, essentially saying "we're cutting, but don't get too comfortable." There are also likely to be dissents in both directions among Fed members.

Here's the interesting part: despite all the negative crosscurrents and market anxiety, history offers a compelling counterpoint. The last 20 times the Fed cut interest rates when the stock market was within 2% of its all-time high, the market went higher over the following 12 months in 100% of cases. The reason is straightforward: some of the excess liquidity the Fed provides inevitably flows into stocks. Of course, this is just one factor among many that investors should weigh.

China's Uncomfortable AI Progress

It may not be politically comfortable to acknowledge, but the evidence suggests China is running neck-and-neck with the United States in the AI race. The U.S. maintains a significant edge through Nvidia's Blackwell chip, which represents the most capable AI processing technology available. The U.S. has banned exports of Blackwell chips to China.

So how is China keeping pace? According to a new report, China appears to be circumventing export restrictions through chip smuggling. The latest DeepSeek AI model was reportedly trained on smuggled Blackwell chips. This isn't just a geopolitical curiosity; it has real implications for investors trying to understand the competitive landscape in AI development.

Following the Magnificent Seven Money Flows

Most portfolios have become heavily concentrated in the Magnificent Seven tech stocks, making early daily money flows in these names increasingly important to monitor.

In early trading, money flows are positive in Amazon.com, Inc. (AMZN) and Tesla Inc (TSLA).

Money flows are neutral in Apple Inc (AAPL) and Nvidia (NVDA).

Money flows are negative in Microsoft Corp (MSFT), Alphabet Inc Class C (GOOG), and Meta Platforms Inc (META).

Money flows are mixed in SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series 1 (QQQ).

Commodities and Crypto Updates

In oil markets, API crude inventories showed a draw of 4.8 million barrels versus consensus expectations of a 1.7 million barrel draw. The most popular oil ETF for tracking crude is United States Oil ETF (USO).

In cryptocurrency markets, a major international bank that has been extremely bullish on bitcoin has dramatically cut its price targets. The bank now expects Bitcoin (BTC) to reach $100,000 in 2025 (down from $200,000), $150,000 in 2026 (down from $300,000), and $225,000 in 2027 (down from $400,000). Bitcoin is currently range bound.

Investment Strategy Considerations

In this environment, consider maintaining good very long-term existing positions. Based on individual risk tolerance, a protection band consisting of cash, Treasury bills, or short-term tactical trades along with hedges can help you participate in upside while managing downside risk.

You can determine your protection bands by combining cash with hedges. The high end of the protection range is appropriate for older or more conservative investors. The low end suits younger or more aggressive investors. If you don't hedge, your total cash level should exceed the stated minimums but remain significantly below what you'd hold if combining cash with hedges.

A protection band of 0% would signal very bullish positioning with full investment and no cash. A protection band of 100% would indicate very bearish positioning requiring aggressive protection through cash and hedges or aggressive short selling.

It's worth emphasizing: you cannot take advantage of new opportunities if you're not holding sufficient cash. When adjusting hedge levels, consider using partial stop quantities for individual stock positions (not ETFs), wider stops on remaining quantities, and allow more room for high beta stocks that move more than the broader market.

The Traditional 60/40 Portfolio Question

For investors following the traditional 60% stocks and 40% bonds allocation, probability-based risk-reward analysis adjusted for inflation does not currently favor long-duration strategic bond allocation.

Those committed to the 60/40 framework should consider focusing exclusively on high-quality bonds with durations of five years or less. Investors willing to add sophistication might consider using bond ETFs as tactical positions rather than strategic holdings at this time.

    Oracle's Debt-Fueled AI Gamble Faces Reckoning as Global Yields Surge to 16-Year High - MarketDash News