The Zhitong Finance App learned that global cloud infrastructure and database giant Oracle (ORCL.US) launched a total of $10 billion in US bonds on Monday, and just a few days ago, the company just announced a new capital expenditure plan to fund its artificial intelligence (AI) infrastructure investment.
According to a source familiar with the matter, the company is promoting this batch of bonds in six batches, with terms ranging from 2 to 20 years. The source said that the initial price guide for the longest term batch was about 3.6 percentage points compared to the interest rate spread on US Treasury bonds.
According to the prospectus, the expected ratings for this batch of bonds are: Moody's “Baa2", S&P “BBB-” and Fitch “BBB”. Among them, S&P's BBB-rating is at the lowest level in the investment-grade ranking, which is only one step away from the “junk debt” threshold. The net capital raised will be used for general corporate purposes, including capital expenses, debt repayment, future investments or acquisitions, and payment of cash dividends or share repurchases.
According to the US Securities and Exchange Commission (SEC) EDGAR system, Oracle submitted an automatic shelf registration statement (S-3ASR, file number 333-299752) on November 2 to provide a basis for raising this bond issue.
Oracle's direct motivation for this round of large-scale financing is its aggressive bet on AI cloud infrastructure. The company made it clear on October 28 at Las Vegas Investor Day that its capital expenditure for the 2026 fiscal year had doubled year-on-year to US$55.7 billion. According to FactSet, this fiscal year is expected to further jump 65% to US$91.9 billion to meet the contract needs of major customers for cloud computing power.
In order to control leverage, Oracle promised investors that during the 2027-2030 investment cycle, the total amount of additional financing will be kept within 20 billion US dollars (excluding refinancing of existing debts), of which the equity and debt are about 10 billion US dollars each. The current issuance of the $10 billion bond is the main body of this debt. The company also promised to achieve positive free cash flow in the 2029 fiscal year, and set its target for the year at over 30 billion US dollars.
This “financing discipline” promised to ease market sentiment for a while — investors surged about 11% the next day, and the market value increased by about 42 billion US dollars in a single day.
AI financing concerns and credit risk indicators soar
However, in the face of optimistic expectations, concerns about skyrocketing AI infrastructure financing continue to ferment in the bond market, and Oracle is becoming a “weather vane” for investors to bet on AI debt risks.
This offering is just a few days until Microsoft Corporation (MSFT.US) ended the nearly three-month gap in issuing large technology company bonds. Currently, bond buyers are demanding higher risk premiums to bear the risks associated with the AI investment boom, and are already paying premiums to protect themselves.
Since last year, several companies, including Oracle, have poured hundreds of billions of dollars into the market to finance new data centers and chip purchases, raising questions about whether these expenses will pay off.
According to S&P Global Market Intelligence data, Oracle's five-year credit default swap (CDS) spread once hit a historical record of about 320 basis points earlier last month and nearly doubled during the year. This level usually corresponds to BB/B (high yield debt) credit, and is far above the pricing that should be given to its investment grade rating.
S&P downgraded Oracle's rating to BBB- in July of this year, and warned that if the company's leverage continues to exceed 4 times or fails to achieve positive free cash flow by the 2029 fiscal year, it may be lowered again. At that time, Oracle debt will fall into the junk debt range, which may trigger investment-grade institutional investors to be forced to sell off.
According to FactSet data, Oracle has issued about $117 billion in long-term debt and about $39 billion in capital and leasing commitments; analysts expect its free cash flow for the current fiscal year to be around -$23.7 billion, further expanding to around $36 billion next fiscal year.