Oracle's five-year credit default swap spreads have widened to 295 basis points, a level that S&P Global Market Intelligence associates with high-yield credit ratings. The spike, which represents a 287 percent increase over the past year, reflects growing market anxiety about the company's ability to service debt as it pivots toward artificial intelligence infrastructure.
The volatility in Oracle's credit markets has intensified amid a broader retreat from AI-related assets, a trend recently led by CoreWeave. While CoreWeave already carries junk ratings, Oracle remains investment grade, though it sits at the lowest tier of that classification. Gavan Nolan, executive director of fixed income pricing at S&P Global Market Intelligence, noted in an email to CNBC that Oracle's spreads have whipsawed recently, mirroring the fragile sentiment surrounding high-yield and weaker investment-grade names.
S&P Credit Ratings downgraded Oracle in July to BBB-, citing increased credit risk from its rapidly expanding infrastructure business. The agency warned that further downgrades could be triggered if Oracle sustains leverage exceeding four times, fails to generate positive free operating cash flow by fiscal 2029, or faces a negative assessment of its AI strategy. According to FactSet data, Oracle has issued $118 billion in long-term debt and holds $39 billion in capital and lease obligations to fund its expansion, including a $300 billion deal with OpenAI.
Analysts project that these expenditures will result in negative free cash flow of $23.7 billion this year and $36 billion in 2027. Jim Reid, global head of macro and thematic research at Deutsche Bank, described Oracle as a key indicator for the sector, warning that a downgrade to junk status could force investment-grade-only investors to sell their holdings.
Jamie Meyers, a senior securities analyst at Laffer Tengler, explained that a junk rating would restrict Oracle's access to long-duration debt, as high-yield investors typically avoid 30-year bonds. However, Meyers expressed confidence that Oracle intends to defend its investment-grade status, noting that the company requires time to ramp up revenue and earnings from its new infrastructure projects.
Brad Collins, a fixed income portfolio manager at Vanguard, also maintained confidence in the company's financial health. He stated that Oracle has been diligent in its issuance strategies and that its balance sheet remains in a healthy starting position. Collins advised against extrapolating the current stress seen in high-yield markets to investment-grade issuers like Oracle.
Pat Nerney, head of investment solutions at Dynasty Financial Partners, characterized the current situation as a financing test for the company. He suggested that if interest rates continue to rise, the opportunity cost for investors holding Oracle paper will increase, potentially demanding higher yields. Oracle responded to a request for comment by stating that maintaining an investment-grade rating is its first priority and that its AI infrastructure business is expected to produce strong free cash flows once projects are ramped.