Oracle's Credit Risk Just Hit an 18-Year High — and Wall Street Is Quietly Asking How Much of the AI Boom Runs on Debt

Oracle's AI Bet Is Starting to Spook the Bond Market

For most of the past two years, the AI boom's biggest worry has been whether the technology works well enough to justify the spending. Lately, a different question has been creeping into analyst notes and trading desks: who's actually paying for all of it, and what happens if the bill comes due before the revenue does?

Oracle has become the test case. According to data reported by outlets including CTV News, The Globe and Mail, and Bloomberg-sourced coverage, the cost of insuring against an Oracle default — its five-year credit default swap (CDS) spread — spiked to roughly 2.03 percentage points in mid-2026, a level traders said was the highest in nearly 18 years, surpassing a record set only days earlier. S&P Global Ratings reportedly responded by cutting Oracle's issuer rating to BBB-, just one notch above speculative, or "junk," territory.

None of this means Oracle is about to default. A CDS spread is a market price for risk, not a prediction — but it's a signal that bond traders are demanding more protection than they have in years, and that's the part worth taking seriously rather than dismissing.

The Numbers Behind the Worry

What's driving it, according to multiple reports, is the scale and structure of Oracle's AI infrastructure buildout. Capital expenditure has reportedly climbed to roughly $55.7 billion in a recent period — close to 83% of revenue — which some coverage says pushed what would otherwise have been record operating cash flow into a reported free cash flow deficit of around $23.7 billion. Total debt has been estimated near $167 billion. A widely cited figure puts Oracle's "remaining performance obligations" — contracted but unfulfilled cloud backlog — at roughly $638 billion, with analysts flagging that a large share is reportedly tied to a multi-year cloud computing contract with OpenAI that, per Bloomberg-sourced reporting, doesn't even begin generating revenue until 2027.

That timing gap is the crux of the concern analysts keep raising: Oracle is reportedly borrowing heavily now, against revenue that's contracted but not yet flowing, from a customer — OpenAI — whose own long-term economics remain unproven at this scale. Khaleej Times, covering the story with a regional business lens, described it as Oracle's "debt-fuelled AI buildout" facing scrutiny precisely because of how concentrated that exposure has become around a single customer relationship.

Is This an Oracle Problem or an AI-Wide One?

Here's where it's important to separate what's confirmed from what's speculation. The CDS spike, the S&P downgrade, and the capex and debt figures are reported by name-brand financial outlets and appear consistent across multiple sources — treat those as solidly sourced. What's genuinely unsettled is the interpretation: is this a company-specific risk, or an early tremor of something bigger?

Some analysts argue Oracle is a special case rather than a bellwether. Unlike Amazon, Microsoft, or Alphabet — hyperscalers that generate enormous free cash flow from existing businesses and can self-fund AI capex — Oracle has reportedly had to lean on debt markets specifically because it lacks that cushion. That's a real structural difference, and it's one reason some commentators push back on reading Oracle's numbers as proof of an industry-wide "AI bubble."

Others disagree, pointing to a broader pattern: one report, citing LSEG data via the Financial Times, said total net notional CDS on major AI-linked tech names — including Oracle, Nvidia, and Alphabet — hit a combined record of around $12.5 billion, up roughly 500% since early 2025, with Oracle alone accounting for about half that figure. If accurate, that suggests credit markets are repricing AI risk more broadly, not just punishing one company's balance sheet.

What to Watch Next

There's also an earlier wrinkle worth noting: reports from late 2025 indicated Oracle had already raised its fiscal 2026 capex guidance by roughly $15 billion beyond earlier estimates, and separately pushed back completion dates on some OpenAI-linked data centers from 2027 to 2028 — a sign that even the company's own buildout timeline has been sliding.

None of this is a verdict on whether AI infrastructure spending is rational or reckless — that debate will likely run for years. But the credit market signals are concrete and worth tracking: a further ratings downgrade, a widening CDS spread, or any sign of delay or renegotiation in the OpenAI cloud contract would all be meaningful next data points. For now, treat the "AI debt bubble" framing as an active, well-sourced debate among analysts rather than a settled conclusion — the underlying financial figures are real, but what they ultimately mean for the industry is still, genuinely, unresolved.

For UAE readers, the relevance isn't abstract: Gulf sovereign funds and state-linked entities have been major backers of exactly this kind of AI infrastructure buildout globally, from data centers to chip supply deals, making the health of the financing behind it directly relevant to the region's own tech investment thesis.