Rising credit default swap costs highlight investor fears that the AI infrastructure frenzy is inflating a new bubble in corporate debt
A key credit-risk indicator for Oracle Corp. has surged to its highest level since the 2008–2009 financial crisis, underscoring growing investor anxiety that the artificial intelligence boom is fueling unsustainable corporate borrowing. Oracle’s (ORCL) credit default swaps (CDS) — insurance-like contracts that protect bondholders in the event of default — closed at roughly 1.28 percentage points this week, according to ICE Data Services, more than triple the cost recorded in June.
The spike comes after Oracle embarked on a massive debt-raising spree, selling tens of billions of dollars in bonds directly and through AI-infrastructure projects it backs. With weaker credit ratings than rival hyperscalers, Oracle has become a focal point for investors seeking protection from a potential downturn in AI momentum. Although the CDS tightened slightly on Wednesday, the increase reinforces broad concerns that the pace of AI investment far exceeds the timeline for meaningful financial returns.
Strategists warn the trend resembles past speculative bubbles. “We’ve had these kinds of cycles before,” TD Securities’ Hans Mikkelsen said, comparing the dynamic to the dot-com boom. Oracle did not comment on the rising CDS levels.
The company, which now carries around $105 billion in debt, is the largest non-bank issuer in the Bloomberg US Corporate index. It sold $18 billion in investment-grade bonds in September and remains deeply tied to AI ambitions through its data-center partnership with OpenAI, from which Oracle expects hundreds of billions in future revenue. But the scale of its leverage has prompted banks like Morgan Stanley to warn that CDS spreads could approach 2 percentage points — levels not seen since 2008.
Hedging activity has exploded as investors brace for volatility, with Oracle CDS trading volume reaching $8 billion over the nine weeks ending Nov. 28, compared with just $350 million a year earlier, according to Barclays analysis.
Meanwhile, the entire tech sector is in the midst of a record borrowing wave to fund AI infrastructure, data centers, and power capacity. Mikkelsen forecasts U.S. investment-grade issuance could hit an unprecedented $2.1 trillion in 2026. While some draw parallels to past successful debt expansions — such as the health-care sector’s growth-driven leverage cycle — Citigroup strategists warn that bondholders capture little upside from AI investment, but bear significant credit risk if spending accelerates unchecked.
With valuations stretched, debt loads swelling, and AI returns still years away, Oracle’s soaring CDS levels may be an early warning signal that the market is reassessing the sustainability of the AI-driven corporate borrowing boom.
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