Oracle’s aggressive push into artificial intelligence infrastructure is colliding with tightening credit conditions, sending a clear warning signal across global debt markets. On Thursday, a key measure of the company’s credit risk surged to its highest level since 2009, reflecting mounting concern that Oracle’s unprecedented investment in data centers is outpacing its ability to generate near-term returns. As the broader tech sector leans heavily on debt to fund AI growth, Oracle has become the early test case for how far investors are willing to go in financing this capital-intensive race.

Credit Markets Flash a Warning

The cost of protecting Oracle’s debt via credit default swaps (CDS) rose to around 1.41 percentage points annually, marking a 16-year high. The shift underscores a sharp deterioration in market confidence, with similar stress surfacing in the company’s long-dated bonds. Spreads on Oracle’s 6% bond due 2055 widened to 196 basis points, signaling that investors are demanding materially higher compensation to hold the company’s debt.

Strategists such as William Smith of AllianceBernstein argue that Oracle’s position now serves as a proxy for “AI capex risk” across the credit market. The company’s stock, which dropped 10% on Thursday, reflects parallel concerns on the equity side, as investors question whether revenue from AI partnerships and cloud demand can scale fast enough to justify the debt load.

AI Ambitions Meet a Strained Balance Sheet

Oracle has accumulated more than $100 billion in debt while accelerating the expansion of data-center infrastructure required for advanced AI workloads. This surge of capital expenditure has contributed to significant cash burn, prompting banks financing Oracle-linked construction projects to hedge their risk through CDS purchases. Trading volume in Oracle CDS ballooned to $9.2 billion over the past 10 weeks — a dramatic jump from $410 million in the same period last year.

The pressure has raised speculation that Oracle may slip toward high-yield credit territory if leverage continues to increase. Co-CEO Clay Magouyrk emphasized the company’s intention to preserve its investment-grade rating and suggested that actual borrowing needs may fall below analysts’ expectations. But analysts and investors alike stress that the company has yet to articulate a long-term financing strategy capable of balancing rapid expansion with credit stability.

Analysts Brace for More Volatility

Morgan Stanley analysts warned that Oracle’s current spreads do not sufficiently compensate for medium-term risks and expect both CDS and bond spreads to widen by another 20 basis points. They noted that even innovative financing — such as asset-backed structures or off-balance-sheet partnerships — would still raise the company’s leverage profile. The lack of detail around funding plans remains Oracle’s most significant credibility gap, especially as markets grow more sensitive to debt accumulation across the AI sector.

What Comes Next

The trajectory of Oracle’s credit risk will hinge on how effectively the company can convert AI infrastructure spending into sustainable revenue. With investors demanding greater transparency on funding strategy, Oracle must demonstrate that its AI partnerships and cloud expansion can support long-term profitability. Until then, the company stands as a defining barometer of how much leverage markets are willing to tolerate as AI reshapes corporate capital allocation.