Oracle's Debt Burden is Rising: Investors are Concerned!

Concerns Over Oracle's Debt Strategy

Oracle Corp bonds have recently seen a decline following reports suggesting that the cloud and artificial intelligence services provider would increase its debt burden. Analysts and investors are highlighting that Oracle plans to take on an additional $38 billion in debt to finance its AI infrastructure.

Oracle has invested billions this year to build its cloud and AI infrastructure. With a total debt of approximately $104 billion, the company holds $18 billion in bonds and is spending more than it earns from its business operations. Oracle aims to invest in contracts with ventures like OpenAI, owned by Sam Altman, confident in its future profits.

Analyst Lisa Shalett stated, "We see most (big technology) companies trying to simultaneously maintain their stock buyback programs while also investing in capital expenditures. They are borrowing and using debt for this."

This week, concerns over Oracle's potential borrowing of an additional $38 billion resurfaced in the trading of the company’s bonds. According to a report by CNBC published on Thursday, the price of Oracle’s bonds with a 4.9% coupon rate maturing in 2033 fell, while yields increased by three basis points over the past two weeks. The newer bonds maturing in 2032, which have a 4.8% coupon rate, saw an increase of nearly two basis points in just one week.

Stu Novick, a technology sector analyst at the corporate bond research firm Gimme Credit, commented, "There is definitely a selling pressure on these bonds. The numbers are gigantic, and many are questioning how they will make money from this."