Oracle Corp's bonds have experienced selling pressure and rising yields following reports that the company plans to add $38 billion to its existing $104 billion debt load to fund AI infrastructure expansion. This significant borrowing, which sees Oracle spending more than it earns from operations to bet on future profits from AI contracts, has raised investor concerns regarding the increasing leverage and the long-term profitability of these substantial investments.
Oracle Corp's reported plan to add $38 billion to its substantial $104 billion debt load for AI infrastructure expansion has prompted a negative market reaction in its bond segment. Following the CNBC report, Oracle's 2033 bonds (4.9% coupon) saw yields increase by over three basis points in two weeks, while 2032 bonds (4.8% coupon) experienced nearly a two basis point rise in one week, indicating selling pressure. This significant borrowing comes as Oracle is already spending more than it earns from operations, directing substantial capital towards building out its cloud and AI infrastructure. The company's strategy involves a long-term bet on future profitability through contracts with emerging AI entities like OpenAI, despite its current outstanding debt of approximately $104 billion. The proposed increase in leverage has raised investor concerns regarding the company's financial health and the viability of its AI investments. Stu Novick of Gimme Credit highlighted "selling pressure" and skepticism about the profitability of these "enormous" expenditures, while Morgan Stanley's Lisa Shalett noted a broader industry trend of tech companies using debt to fund capex and stock buybacks.
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strongly negative
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-0.65
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