Investors Grow Nervous Over Oracle’s AI-Driven Debt Burden Ahead of Earnings

Investors have experienced a roller‑coaster year with Oracle as they try to gauge the software giant’s footing in the artificial‑intelligence boom.

The stock is up more than 30 % year‑to‑date, despite a 23 % slide in October – its steepest monthly decline since 2001. By the end of November the shares had recovered roughly 10 %.

With the company’s fiscal second‑quarter earnings slated for Wednesday, pressure is mounting on the newly appointed co‑CEOs, Clay Magouyrk and Mike Sicilia, to demonstrate that Oracle can fund its ambitious infrastructure expansion while convincing Wall Street that the AI‑driven growth narrative remains intact.

Oracle’s emergence as a central AI player has been accelerated by a landmark agreement with OpenAI. The deal, announced in September, commits OpenAI to purchase Oracle’s computing capacity for five years starting in 2027, with a total contract value of roughly $300 billion – one of the largest AI‑related contracts ever signed.

Financing this massive compute build‑out will require substantial debt issuance. In late September Oracle raised $18 billion in a jumbo bond sale, placing it among the biggest non‑financial issuers of investment‑grade debt, according to Citi.

“There is something inherently uncomfortable as a credit investor about the transformation we’re facing that will require an enormous amount of capital,” said Daniel Sorid, head of U.S. investment‑grade credit strategy at Citi during a recent investor call.

Oracle has secured billions of dollars in construction loans from a consortium of banks to fund data‑center projects in New Mexico and Wisconsin. Citi analyst Tyler Radke projects the company will need to raise $20‑$30 billion in debt each year for the next three years.

As of August, Oracle’s combined short‑term and long‑term debt, including lease obligations, stood at $111.6 billion, up from $84.5 billion a year earlier, while cash and equivalents dipped slightly to $10.45 billion.

Analysts are questioning whether Oracle will look beyond traditional debt markets for additional capital. “Oracle will explore all options – off‑balance‑sheet facilities, equity issuance, or even sovereign‑wealth‑fund investment,” said Rishi Jaluria, software analyst at RBC Capital Markets, who recommends a hold on the stock.

Credit investors have pointed to Meta’s recent $27 billion joint venture with Blue Owl Capital as a potential financing model for AI data‑center development.

Vendor financing is also on the table. Securing favorable terms with suppliers such as Nvidia could reduce upfront outlays, though using Nvidia GPUs as collateral raises concerns about rapid depreciation of the hardware.

An Oracle spokesperson declined to comment.

The uncertainty highlighted by Sorid has driven Oracle’s five‑year credit default swaps (CDS) to multi‑year highs. CDS act as insurance for investors, offering protection should a borrower default on its obligations. Bond investors say these instruments have become a popular hedge against AI‑related credit risk.

Barclays and Morgan Stanley analysts have recommended buying Oracle’s five‑year CDS, arguing that the company’s credit trajectory shows little sign of improvement. Barclays’ Andrew Keches noted a lack of clear pathways for credit enhancement, while Morgan Stanley warned that the CDS market is attracting “tourist” investors with limited experience in such instruments.

Investors will scrutinize Oracle’s revenue growth and backlog to determine whether its spending plans are justified. StreetAccount expects second‑quarter revenue to rise 15 % to $16.2 billion.

Remaining performance obligations (RPO) – contracted revenue not yet recognized – are projected to exceed $500 billion, a more than fivefold increase from a year earlier. Oracle’s September disclosure of a 359 % jump in RPO to $455 billion spurred a 36 % one‑day stock rally, the strongest single‑day gain since 1992. Those gains have since been erased.

Gil Luria of D.A. Davidson says he will be watching Oracle’s core database business closely, as it delivers higher margins and underpins the company’s cash‑flow flexibility. “Oracle can handle the debt load, but it needs stronger cash flow to raise additional capital,” Luria added, maintaining a hold recommendation.