Oracle’s Debt-Fueled AI Ambitions Spark Investor Concern

Oracle shares have mounted a partial recovery following a challenging November, but beneath the surface rally, significant warning signals are flashing. While equity investors have pushed the stock higher in the short term, the credit markets are sounding an alarm. The trigger is a massive debt issuance to fund an aggressive expansion into artificial intelligence infrastructure, a move that is sharply altering the tech giant's risk profile and drawing comparisons to pre-financial crisis behavior.

The immediate concern for many market participants is not Oracle's core operations, but the rapidly changing structure of its balance sheet. Reports indicate the company is preparing a bond issuance worth approximately $38 billion. This capital is deemed essential to remain competitive in the expensive race to build out AI-ready data center capacity.

The credit market's reaction to this borrowing spree has been swift and severe. The cost of insuring Oracle's debt against default, known as Credit Default Swaps (CDS), has surged to its highest level since 2008. This spike in risk premiums reveals a growing skepticism among institutional creditors regarding the company's aggressive leverage strategy. If spending continues at its current pace, analysts project that net debt could balloon to nearly $290 billion by 2028.

Upcoming Earnings Report Pivotal

All eyes are now fixed on Oracle's quarterly results, scheduled for release on Tuesday, December 10. This report is widely seen as a critical test for management's high-stakes strategy. Investors will be demanding clarity on three key issues:

Should investors sell immediately? Or is it worth buying Oracle?

• Revenue Conversion: Can the company's recently swollen backlog of contracts be successfully translated into tangible revenue?
• Capital Deployment: What are the precise plans for investing the billions raised from the new debt?
• Profitability Trajectory: Are the enormous infrastructure costs pressuring profit margins sooner than anticipated?

The forthcoming numbers will determine the narrative. A demonstration that debt-funded expansion is directly fueling growth could lend substance to the recent stock recovery. However, should margins or forward guidance disappoint, the heightened credit risk is likely to return to the forefront of shareholder concerns.

Equity Analysts Adjust Targets Amid Uncertainty

Despite the clear signals of concern from debt markets, equity analysts largely maintain a favorable long-term view, though they are recalibrating their expectations. Citi, for instance, reaffirmed its Buy rating but reduced its price target from $415 to $375. The rationale centers on a belief that Oracle remains a potential long-term winner in the AI boom, but its valuation must be reassessed in light of both volatile share performance and a significantly more leveraged financial position.

This fundamental ambivalence is reflected in recent trading activity. While the stock has climbed roughly 6% over the past week, it closed at €184.28—a figure that remains more than 34% below its 52-week high reached in September. The path forward hinges on whether the debt-fueled gamble on AI will pay off or if the warnings from the credit markets will prove prescient.