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Why Wall Street Is Shorting Oracle To Hedge Against AI's Credit Bubble

MarketDash Editorial Team
3 days ago
When hedging AI credit risk gets too expensive, some investors are turning to Oracle shorts as an indirect play. Ali Meli of Monachil Capital Partners explains why Oracle has become the go-to proxy for betting against AI infrastructure debt.

Here's an unusual hedging strategy making the rounds on Wall Street: if you're worried about a credit bubble brewing in artificial intelligence infrastructure, just short Oracle Corp. (ORCL). It sounds counterintuitive, but according to Ali Meli, CIO of Monachil Capital Partners, it's become the trade of choice for investors who want to bet against AI credit risk without paying through the nose to do it.

The Logic Behind The Proxy Trade

In a conversation with Yahoo Finance, Meli laid out why Oracle has become what he calls a "cheap proxy" for investors looking to express bearish views on smaller, private AI infrastructure companies like CoreWeave Inc. (CRWV). The problem is simple: if you want to hedge CoreWeave's debt directly using Credit Default Swaps, you'll pay a fortune. Those premiums have gotten prohibitively expensive as concerns about CoreWeave's business model have mounted.

Enter Oracle. Because Oracle is aggressively building data centers for many of the same AI startups that everyone's worried about, its stock offers a much more liquid and accessible way for traders to express the same bearish view on the sector's financial health. You get exposure to the same fundamental risks without the high-yield issuer premiums. As Meli put it, "Investors use Oracle shorts as a proxy for AI credit risk."

The OpenAI Problem

At the heart of Oracle's risk profile sits one massive customer: OpenAI. Meli pointed out that OpenAI, which happens to be Oracle's largest client, is reportedly hemorrhaging nearly $12 billion per quarter based on Microsoft Corp. (MSFT) financial disclosures. "It is indeed a major risk," Meli warned, noting the troubling lack of transparency around OpenAI's finances.

Think about what happens if OpenAI hits a liquidity wall or simply can't pay its bills. Oracle would be stuck with billions of dollars worth of contracted data centers that aren't exactly easy to repurpose for other clients. You can't just slap a "For Rent" sign on specialized AI infrastructure and expect a line of eager tenants. That's a unique operational nightmare that traditional credit analysis might not fully capture.

Balance Sheet Strain And Rising Capital Costs

The external risks are only part of the story. Oracle's own balance sheet is starting to show some serious strain. Meli highlighted that Oracle's capital expenditures have more than tripled over the last six months, jumping from $6 billion to $20 billion. And how is Oracle funding this massive build-out? Largely through debt.

The bond market is taking notice. Oracle's credit spreads are widening, which is bond market speak for "we're getting nervous about this." Investors are demanding higher yields to hold Oracle's debt, signaling increasing caution about the company's rapid, credit-fueled expansion into AI infrastructure.

Stock Performance Reflects Growing Concerns

The skepticism isn't confined to the credit markets. Shares of ORCL have declined 15.74% over the last six months, though they're still up 18.12% year-over-year. On Friday, the stock closed 0.41% higher at $195.71 per share.

Oracle currently maintains a weaker price trend across short, medium, and long-term timeframes with a poor value ranking according to market data.

What we're seeing here is a fascinating convergence of AI hype, credit risk, and counterparty concentration. Oracle made a big bet on becoming the infrastructure backbone for AI's biggest players. That bet looked brilliant when AI was the hottest story in tech. But now, as questions mount about AI economics and whether companies like OpenAI can actually turn massive compute spending into sustainable business models, Oracle finds itself uncomfortably exposed. And for investors who think the AI credit story might end badly, shorting Oracle has become the most efficient way to express that view.

Back to Stock Market News

Why Wall Street Is Shorting Oracle To Hedge Against AI's Credit Bubble

MarketDash Editorial Team
3 days ago
When hedging AI credit risk gets too expensive, some investors are turning to Oracle shorts as an indirect play. Ali Meli of Monachil Capital Partners explains why Oracle has become the go-to proxy for betting against AI infrastructure debt.

Here's an unusual hedging strategy making the rounds on Wall Street: if you're worried about a credit bubble brewing in artificial intelligence infrastructure, just short Oracle Corp. (ORCL). It sounds counterintuitive, but according to Ali Meli, CIO of Monachil Capital Partners, it's become the trade of choice for investors who want to bet against AI credit risk without paying through the nose to do it.

The Logic Behind The Proxy Trade

In a conversation with Yahoo Finance, Meli laid out why Oracle has become what he calls a "cheap proxy" for investors looking to express bearish views on smaller, private AI infrastructure companies like CoreWeave Inc. (CRWV). The problem is simple: if you want to hedge CoreWeave's debt directly using Credit Default Swaps, you'll pay a fortune. Those premiums have gotten prohibitively expensive as concerns about CoreWeave's business model have mounted.

Enter Oracle. Because Oracle is aggressively building data centers for many of the same AI startups that everyone's worried about, its stock offers a much more liquid and accessible way for traders to express the same bearish view on the sector's financial health. You get exposure to the same fundamental risks without the high-yield issuer premiums. As Meli put it, "Investors use Oracle shorts as a proxy for AI credit risk."

The OpenAI Problem

At the heart of Oracle's risk profile sits one massive customer: OpenAI. Meli pointed out that OpenAI, which happens to be Oracle's largest client, is reportedly hemorrhaging nearly $12 billion per quarter based on Microsoft Corp. (MSFT) financial disclosures. "It is indeed a major risk," Meli warned, noting the troubling lack of transparency around OpenAI's finances.

Think about what happens if OpenAI hits a liquidity wall or simply can't pay its bills. Oracle would be stuck with billions of dollars worth of contracted data centers that aren't exactly easy to repurpose for other clients. You can't just slap a "For Rent" sign on specialized AI infrastructure and expect a line of eager tenants. That's a unique operational nightmare that traditional credit analysis might not fully capture.

Balance Sheet Strain And Rising Capital Costs

The external risks are only part of the story. Oracle's own balance sheet is starting to show some serious strain. Meli highlighted that Oracle's capital expenditures have more than tripled over the last six months, jumping from $6 billion to $20 billion. And how is Oracle funding this massive build-out? Largely through debt.

The bond market is taking notice. Oracle's credit spreads are widening, which is bond market speak for "we're getting nervous about this." Investors are demanding higher yields to hold Oracle's debt, signaling increasing caution about the company's rapid, credit-fueled expansion into AI infrastructure.

Stock Performance Reflects Growing Concerns

The skepticism isn't confined to the credit markets. Shares of ORCL have declined 15.74% over the last six months, though they're still up 18.12% year-over-year. On Friday, the stock closed 0.41% higher at $195.71 per share.

Oracle currently maintains a weaker price trend across short, medium, and long-term timeframes with a poor value ranking according to market data.

What we're seeing here is a fascinating convergence of AI hype, credit risk, and counterparty concentration. Oracle made a big bet on becoming the infrastructure backbone for AI's biggest players. That bet looked brilliant when AI was the hottest story in tech. But now, as questions mount about AI economics and whether companies like OpenAI can actually turn massive compute spending into sustainable business models, Oracle finds itself uncomfortably exposed. And for investors who think the AI credit story might end badly, shorting Oracle has become the most efficient way to express that view.