Oracle Credit Derivatives Jump as Traders Rush to Hedge AI Bets

Core Viewpoint - The cost of protecting Oracle Corp.'s debt against default is increasing significantly due to investor concerns over the company's rising leverage and substantial investments in artificial intelligence [1][2]. Group 1: Debt and Credit Default Swaps - The spread on Oracle's five-year credit default swaps rose by 13.5 basis points to 101.68 basis points, marking the largest increase since December 2021 [1]. - Rising credit default swap prices indicate declining investor confidence in Oracle's credit quality, driven by fears of the company's leverage pushing it towards junk status [2]. Group 2: AI Investments and Financing - Oracle is part of a consortium, including OpenAI and SoftBank, aiming to invest $500 billion in AI infrastructure, with a significant portion financed through an $18 billion project loan from a group of about 20 banks [3]. - In September, Oracle issued $18 billion in US high-grade bonds to support its increased spending in response to the AI boom [3]. Group 3: Future Financial Outlook - Analysts predict Oracle's net adjusted debt could more than double to approximately $290 billion by fiscal year 2028, up from around $100 billion [4]. - Concerns regarding future revenue and cash flow generation due to rising AI infrastructure spending have negatively impacted Oracle's stock and bond prices [4]. Group 4: Investor Sentiment - Despite rising risks and underperformance in tech debt, analysts believe that concerns about a bubble in the AI sector are currently overstated [5].