Oracle, Once AI Darling, Hit Hard by Debt Jitters

By Peter Rudegeair , Nate Rattner and Sebastian Herrera

Oracle has never given up gains this big, this fast.

Investors nervous about the scale of capital that technology companies are plowing into AI infrastructure rattled stocks this week. Oracle has been one of the companies hardest hit.

Shares in the software

maker popped more than 30% in September when the company disclosed a $317 billion revenue backlog. The Wall Street Journal later reported that most of it came from a deal with OpenAI . Since then, Oracle has lost all of that ground and then some.

In nearly four decades as a

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publicly traded company, it has posted one-day gains of 30% or more three other times. It has never faded back to its prepop close until now, according to Dow Jones Market Data. Shares closed up 2.2% Wednesday to $225.53.

And that is just its stock. The company needs to borrow billions of dollars to pay to build the AI infrastructure it needs to serve OpenAI and other AI customers, recently selling around $18 billion in new investment-grade bonds.

After the new issuance, Oracle’s outstanding debt load surpassed $100 billion, making it the most indebted big tech company with an investment- grade rating. It is burning cash and will still need to borrow billions more to meet its dividend and capitalspending commitments.

Oracle declined to comment.

Moody’s Ratings and S&P Global Ratings have edged closer to reclassifying the company’s bonds as junk debt.

Oracle is also projected to run up a big tab with its future data-center landlords. One of them borrowed $38 billion recently to build two data-center campuses where Oracle will be the tenant.

The company’s adjusted debt, a measure that includes what it owes on leases in addition to what it owes creditors, is forecast to more than double to roughly $300 billion by 2028, according to credit analysts at Morgan Stanley.

“The market has gone into ‘you have to prove this to me’ territory,” said Rishi Jaluria, an analyst at RBC Capital Markets.

Fund manager Blue Owl Capital, which invests money in data centers leased by big tech companies, offsets the higher risk of c o n t ra c t i n g with Oracle by charging higher rent than tenants

like Meta pay, the Journal reported earlier this month.

Some investors and creditratings firms point in particular to the degree to which Oracle is reliant on OpenAI. The startup forecasts its operating losses to swell to about $74 billion—or roughly threefourths of revenue—in 2028, thanks to ballooning spending on computing costs, The Journal reported.

Oracle recently told investors that it has contracts worth tens of billions with non-OpenAI customers that include Meta Platforms. CEO Clay Magouyrk, who runs Oracle’s cloud infrastructure business, told CNBC in October he was confident that OpenAI would meet its commitment to pay Oracle what could amount to about $60 billion a year over five years, and that he thinks there will be multiple winners in the artificial- intelligence race.

The cost of protecting Oracle’s bonds against a potential default has risen in recent weeks. The spread on Oracle’s five-year credit-default swaps has more than doubled since mid-September to about 1.1 percentage points, though that is still low in absolute terms. Credit-default swaps on single companies can be volatile because they are often thinly traded.

Oracle’s long-term creditors could be buying creditdefault swaps to hedge their exposure to the company while others might be using them to “express an outright view on the broader AI capex theme,” the Morgan Stanley credit analysts wrote in September.

$300B

Oracle’s anticipated adjusted debt by 2028, more than double the current level