Tech giant Oracle (ORCL) is starting to worry credit markets, as a key measure of its default risk is getting close to the highest level ever recorded. Specifically, the cost of insuring its debt, known as credit default swaps (CDS), rose to about 198.6 basis points, which would be higher than levels seen during the 2008 financial crisis. This increase is happening as investors become more cautious about Oracle’s growing debt, especially with rising oil prices and a weaker stock price adding pressure.
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Interestingly, Oracle has become a way for the market to track the cost of building AI infrastructure. According to Bloomberg and portfolio manager John Lloyd, Oracle’s CDS is now being used as a proxy for “AI credit risk.” In simple terms, investors are watching Oracle to understand how much debt companies are taking on to fund AI projects. Importantly, this doesn’t necessarily mean Oracle’s business is weak.
Instead, it highlights the market’s belief that huge amounts of borrowing are needed to support AI growth, which naturally increases financial risk. In fact, Oracle has taken on a large amount of debt to fund these investments. Around $120 billion of its bonds are included in the Bloomberg U.S. high-grade corporate bond index, making it the biggest issuer in that group outside of banks. Its CDS is also one of the most actively traded in the investment-grade market, which shows just how closely investors are watching it.
Is ORCL Stock a Good Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on ORCL stock based on 27 Buys, four Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average ORCL price target of $245.11 per share implies 75.3% upside potential.
