opinion The weather's cooling, and so is Wall Street's patience with Oracle's AI makeover. Big Red is spending big, and the risk metrics aren't looking cozy.
It all started so well in September. Despite lackluster profit and revenue figures, Oracle’s shares climbed 30 percent when its first quarter results for FY2026 revealed its remaining performance obligations (RPOs) were stuffed with the promise of $455 billion, largely for its cloud infrastructure, briefly allowing co-founder and CTO Larry Ellison to claim the crown of the world’s richest person.
Jump forward a couple of months, and the chilly winds of winter are blowing in Oracle’s direction.
As Thanksgiving nears, financial traders have piled into Oracle’s credit-default swaps, in which the buyer gets some insurance against a debt default. The price of the financial instruments insuring against defaults for five years has tripled for Oracle in recent months, an indication of a perceived increase in risk.
Meanwhile, investors have flooded into the market, trading more than $5 billion (£3.8bn) in Oracle CDS since September, according to Jigar Patel, a Barclays analyst. In the same period last year, just $200 million was traded, according to Bloomberg.
To build out its cloud infrastructure in support of the AI goldrush, Oracle has committed to significant investment. Capital spending — largely on datacenters for AI — is set to hit $35 billion in fiscal 2026, up from $21 billion in fiscal 2025.
Shortly after it released its Q1 results, Oracle announced a $300 billion cloud compute contract with OpenAI, and KeyBanc analysts warned that Big Red may need to borrow roughly $100 billion over the next four years to build the datacenters required.
Oracle has already raised $18 billion in bonds, and is likely to raise $38 billion more with more than $100 billion on its balance sheet. Credit agency Moody’s kept Oracle’s rating the same. Still, they introduced a new overhang owing to significant "counterparty risk" in Oracle's projected growth — the possibility that another party fails to meet its obligations.
At which point, it might be apt to point out that LLM provider OpenAI hasn't yet turned a profit, raising fair questions about its ability to pay Oracle.
Oracle’s net debt is now more than double its EBITDA (earnings before interest, taxes, depreciation, and amortization), a measure of operational profit. That number has doubled since 2021, and forecasters expect it to double again by 2030.
Such is the reality of the situation, and the turning sentiment against AI generally, that some financial commentators have been mean enough to point out that, since announcing its deal with OpenAI, Oracle’s market capitalization has fallen by more than the deal is reportedly worth.
To be clear, Oracle’s market capitalization is still roughly $620 billion, it has an investment-grade credit rating and rock-solid revenue from thousands of enterprise software customers. It is not going to default on its obligations anytime soon.
And the cooling temperature is unlikely to affect the optimism of Ellison, the company’s de facto leader. At a recent company event, he was spreading his belief that the AI Oracle is helping to sustain would help solve climate change and grow plentiful food.
Nonetheless, it would be good to remember that, although the fall can be ablaze with orange, yellow and — yes — red, in time, the colors all eventually turn to brown. ®
Source: The register