Oracle is pressing ahead with plans to raise up to $50 billion this year to fund its artificial intelligence initiatives, despite growing investor concerns about the company’s increasing debt load. The tech giant’s bond yields have been climbing as it prepares for a significant bond offering early in .
The company initially announced plans in late to add approximately $38 billion in debt to finance its AI infrastructure build-out. This announcement triggered a sell-off in Oracle bonds, with yields on its 2032 and 2033 bonds increasing by as much as three basis points, according to market participants. The price of Oracle’s bonds maturing in with a 4.9% coupon has dipped, while the yield on its newer bonds maturing in with a 4.8% coupon has also risen.
Despite these concerns, investors participated in a recent $25 billion bond offering on , seemingly reassured by Oracle’s commitment to maintaining its investment-grade credit rating. Oracle has pledged to keep its debt in check, even as it pursues its ambitious AI strategy.
As of late , Oracle already had roughly $104 billion in debt outstanding, including $18 billion in bonds. The company is currently spending more than it earns from operations, betting that future profits from contracts with companies like OpenAI will justify the increased borrowing. This strategy is not unique to Oracle; other major tech companies are also utilizing debt to fund capital expenditures and sustain stock buyback programs, according to Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management.
Oracle plans to sell investment-grade bonds in a one-time issuance
early this year and does not anticipate any further bond issuances for the remainder of . This suggests the company is aiming to secure the necessary funding in a single tranche, potentially to minimize ongoing market scrutiny and signal a commitment to fiscal discipline.
The company has already invested billions of dollars in building its cloud and AI infrastructure this year. The decision to raise such a substantial amount of capital underscores the scale of Oracle’s ambitions in the rapidly evolving AI landscape. The market is closely watching to see if Oracle can successfully navigate this period of heavy investment and deliver the returns necessary to service its growing debt burden.
The renewed questions about the viability of Oracle’s strategy surfaced following reporting that the company plans to assume an additional $38 billion in debt. Stu Novick, a tech sector credit analyst at Gimme Credit, noted that there is definitely some selling pressure
on Oracle’s bonds. Oracle did not respond to a request for comment regarding the bond sell-off.
The $50 billion funding plan, which includes both equity and debt, was revealed recently, leading to a decline in Oracle’s stock price. This indicates that investors are not entirely convinced that the potential benefits of Oracle’s AI investments outweigh the risks associated with increased financial leverage.
