The cost of protecting Oracle Corporation’s debt against default has climbed sharply in recent weeks, driven by investor anxiety over the company’s expanding reliance on borrowing to finance its AI and cloud infrastructure buildout. The move places Oracle at the center of a growing debate across global markets: whether the industry’s rapid AI spending cycle is generating sustainable demand or introducing new financial risks for highly levered firms.

Credit markets react to Oracle’s accelerated spending

Credit default swaps on Oracle—used as a gauge of perceived default risk—have risen to their highest levels since the mid-2000s, according to market data referenced by analysts. The increase reflects investor concerns that Oracle’s debt-funded capital expenditures are outpacing near-term earnings growth. While the company has positioned itself as a critical AI infrastructure provider, partnering with firms such as Nvidia and OpenAI, the required investment in data centers, chips, and cloud capacity is substantially larger than historical spending patterns.

For fixed-income investors, the central issue is the speed of Oracle’s balance-sheet expansion. The company has issued billions in new debt over the past two years, pushing its total obligations higher even as cash flow remains under pressure. While Oracle argues that AI workloads will drive strong future demand, the credit market’s reaction indicates that investors are not yet convinced the returns will materialize at the same pace as the expenditure.

AI buildout raises questions about structural demand

The broader concern extends beyond Oracle. Investors worldwide, including institutional analysts in Israel, have pointed to the emerging possibility of an AI investment bubble, where major technology companies are spending ahead of actual commercial adoption. Oracle’s rapid expansion, although strategically aligned with expected future workloads, is emblematic of this industry trend.

Some analysts warn that unless AI demand accelerates meaningfully, companies pursuing aggressive buildouts may face margin compression and longer payback periods. The situation is compounded by rising financing costs and persistent uncertainty over the monetization of generative AI. Oracle’s credit-risk spike, therefore, is viewed by many as a signal of the market repricing AI-related leverage across the sector.

Market overhang: leverage, cash flow, and strategic pressure

Oracle maintains that its expanding cloud business will eventually offset AI-related spending. However, the company faces pressure on multiple fronts. First, its elevated leverage profile puts it at a disadvantage compared to peers with larger cash reserves. Second, the highly competitive cloud market—dominated by Microsoft, Amazon, and Google—limits Oracle’s pricing power, which could slow profitability improvements.

Finally, the rapid increase in credit-insurance costs could raise future borrowing expenses, affecting the economics of ongoing and future data-center projects. This ripple effect could influence how aggressively Oracle continues its AI infrastructure rollout, potentially forcing the company to reassess its financing strategy.

Looking ahead, analysts expect credit markets to closely monitor Oracle’s upcoming earnings, cash-flow disclosures, and commentary on AI-driven revenue visibility. If the company can demonstrate clearer evidence of sustained, high-margin AI demand, the pressure on its debt metrics may ease. But until then, Oracle’s rising credit costs will remain a focal point for investors evaluating the durability of the current AI investment cycle.