Credit stress threatens to unwind AI bull market; Oracle faces potential downgrade
Oracle (ORCL) is facing growing concerns over its creditworthiness as the artificial intelligence sector cools. The company's five-year credit default swap spreads have widened significantly, reflecting increased risk perception among investors. Unlike CoreWeave (CRWV), which already operates in high-yield territory, Oracle remains investment-grade but sits near junk status after a recent downgrade by S&P Global. Analysts note that Oracle’s aggressive expansion into data centers and cloud services—fueled by $118 billion in long-term debt—is straining its finances as it awaits substantial AI-driven revenue. Oracle's credit rating is currently BBB-, the lowest investment-grade level, with a potential downgrade looming if leverage exceeds 4x or free cash flow remains negative beyond fiscal 2029. A move into junk territory could trigger forced sales among institutional investors restricted to investment-grade holdings and ripple through the broader AI financing ecosystem. Market sentiment has shifted rapidly in recent weeks, mirroring wider volatility seen across speculative tech sectors.