Oracle credit risk gauge hits record high amid AI spending concerns

Oracle credit risk gauge hits record high amid AI spending concerns

Stocks snap two-week win streak as AI-trade bleeds, pushing chips into bear market Investing.com -- A measure of Oracle Corporation’s (NYSE:ORCL) credit risk climbed to an all-time high on Friday as investors weighed the company’s heavy artificial intelligence spending and the potential profitability of those investments, Bloomberg reported. The cost of insuring Oracle’s debt against default through credit derivatives rose by about 10 basis points to 198.23 basis points, according to ICE Data Services. That marked its highest closing level on record, narrowly surpassing the previous peak of 198.18 reached on March 27.

A rise in the gauge indicates that investors are demanding greater compensation to protect themselves against the possibility of a default. Concerns have intensified as Oracle pours capital into data centres needed to support growing demand for AI computing. The infrastructure buildout has weighed on its finances, leaving the company with negative free cash flow from operations.

S&P Global Ratings last week downgraded Oracle’s credit rating to BBB-, the lowest investment-grade level and one notch above junk status. The ratings agency said it had repeatedly underestimated the amount the software group would need to spend upfront on its AI expansion. Technology stocks also came under broader pressure on Friday after a Chinese startup introduced an AI model that raised concerns about increased competition for established developers, including OpenAI.

The development added to questions over whether costly infrastructure investments by major US technology companies will generate adequate returns. Oracle has become a major player in the AI infrastructure race through its cloud computing business, which supplies computing capacity to model developers and enterprise customers. Building that capacity requires significant spending on data centres, networking equipment and advanced chips.

The company has about $117 billion of bonds included in Bloomberg’s US high-grade corporate bond index. That makes Oracle the largest non-financial corporate borrower represented in the benchmark.