A key measure of credit risk tied to tech firm Oracle (ORCL) just hit its highest level since the Great Financial Crisis, as investors grow uneasy about tech companies piling on debt to fund artificial intelligence projects. On Tuesday, the cost to insure Oracle’s debt against default rose to about 1.28% per year, the highest since March 2009, according to ICE Data Services. That figure has more than tripled since June, when it was just 0.36%.
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It is worth noting that Oracle has recently issued tens of billions of dollars in bonds, both directly and through projects it supports. Because Oracle has a lower credit rating than other large cloud companies, its debt has become a popular way for investors to hedge against a possible downturn in the AI sector. However, analysts say that investors are nervous about the disconnect between the large sums being spent on AI and how long it will take for those investments to deliver profits.
For example, TD Securities’ Hans Mikkelsen warned that the situation feels similar to past bubbles, such as the dot-com era, when hype drove prices before reality set in. In addition, as of late August, Oracle had around $105 billion in total debt, with $95 billion in U.S. bonds, making it the largest non-bank issuer in the Bloomberg U.S. Corporate Bond Index.
Is ORCL Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ORCL stock based on 26 Buys, 11 Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average ORCL price target of $353.16 per share implies 71.3% upside potential.
