Oracle just posted its worst weekly stock performance since the dot-com bust of 2001, and the reason wasn’t disappointing sales — it was fear about how the company is paying for its AI expansion. CNBC reported on June 26, 2026, that Oracle shares fell sharply as investors dwelled on the company’s finances, capping a stretch in which Oracle stock declined more than 25% in the first half of 2026 despite strong underlying cloud growth.
Debt Levels That Alarmed Bond Investors
Oracle’s long-term debt rose to approximately $124.7 billion by the end of its most recent quarter, a substantial jump from the prior year, according to reporting on the company’s financial filings. Capital expenditures climbed 162% to nearly $56 billion in fiscal 2026 as Oracle raced to build data centers alongside Amazon, Microsoft, and Google, leaving the company with negative free cash flow of almost $24 billion for the fiscal year. The cost to insure Oracle’s debt against default — its credit default swap spread — soared to its highest level since 2009, according to reporting from iTiger, a signal that bond market participants are pricing in meaningfully higher risk of financial distress.
More Borrowing on the Way
Oracle has said it plans to raise a further $40 billion through a combination of debt and equity financing in fiscal 2027, building on $43 billion in debt sales and $5 billion in equity issuance during the prior fiscal year, along with a previously announced $20 billion share sale. The scale of that ongoing borrowing has become the central sticking point for skeptical investors, who argue Oracle is effectively betting its balance sheet on continued explosive growth in AI cloud demand.
The Case That the Growth Justifies the Debt
Oracle’s defenders point out that its cloud infrastructure revenue surged roughly 84% in the same period, and the company has continued reporting substantial backlog growth tied to AI-related contracts, including large commitments from OpenAI. From this perspective, the debt is financing genuinely contracted future revenue rather than speculative buildout, and Oracle is simply following the same capital-intensive playbook as larger, better-capitalized hyperscalers — just with a smaller balance sheet cushion to absorb any shortfall.
Why Bond Investors Are Less Convinced
The skepticism centers on scale mismatch: Oracle’s debt load and negative free cash flow are large relative to its overall size compared with Amazon, Microsoft, or Alphabet, each of which can fund massive AI capex from enormous existing cash generation. Fortune reported in February that Bank of America had argued Oracle “defused” what it called the key financial risk heading into 2026, yet bond markets clearly weren’t fully convinced months later, given the subsequent surge in CDS pricing. Some of that renewed anxiety has also fed into broader “circular financing” concerns across the AI sector, as short seller Michael Burry has pointed to Oracle’s CDS spike as part of the same pattern he sees in Nvidia-linked financing arrangements.
A Bellwether for AI Infrastructure Financing
Oracle’s situation matters beyond its own stock because it offers the clearest real-time test case for whether debt-funded AI infrastructure spending can be sustained without triggering credit market stress. Unlike Meta or Alphabet, which fund capex primarily from existing cash flow, Oracle relies far more heavily on debt markets — making its bond pricing an early warning indicator that other AI infrastructure financing structures, including hyperscaler-backed vendor financing deals, may eventually be tested against as well.
What’s Ahead
Oracle’s ability to convert its cloud backlog into cash flow over the coming quarters will determine whether the current CDS spike proves to be a temporary scare or the start of a more serious repricing of AI infrastructure debt broadly. Investors will be watching Oracle’s next earnings report for updates on backlog conversion, capital expenditure trajectory, and any change to its financing plans, given the company’s stated intention to raise another $40 billion in fiscal 2027. Credit rating agencies are also expected to weigh in on whether Oracle’s debt load remains consistent with its current investment-grade ratings, a determination that could itself influence borrowing costs for the rest of the AI infrastructure buildout if agencies signal broader concern about sector-wide leverage.
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