According to Financial Times News, Morgan Stanley analysts Lindsay Tyler and David Hamburger are recommending investors go long on Oracle credit default swaps as the company faces massive financial pressures. Oracle’s adjusted net debt is forecast to almost triple over the next three years due to ballooning bonds and data center lease liabilities. The analysts predict Oracle’s five-year CDS contracts could smash past 150 basis points and potentially approach 200 basis points in the new year – levels last seen during the 2008 financial crisis. This means insuring $10 million of Oracle bonds would cost about $150,000 annually, up from below $40,000 earlier this summer. Morgan Stanley cites Oracle’s “funding gap, growing balance sheet, capex & obsolescence risk, ratings pressure, counterparty risk, and more” as reasons for concern, with the company emerging as the weakest member of the AI hyperscaler herd.
The debt problem nobody’s talking about
Here’s the thing about Oracle’s situation – it’s not just about current numbers, but about where this is heading. Morgan Stanley actually made these adjusted net debt forecasts back in September and now thinks they “may even be too low.” That’s pretty grim when you consider they’re talking about liabilities nearly tripling in three years. And we’re not just talking about traditional bonds here – data center leases are becoming a massive hidden liability on their balance sheet. Basically, Oracle’s going all-in on AI infrastructure, but the financing strategy looks… questionable at best.
What credit default swaps actually mean
If you’re not familiar with credit default swaps, think of them as insurance policies against a company defaulting on its debt. The fact that Oracle’s CDS prices have jumped from below 40 basis points to potentially 200 tells you everything about how bond market sentiment has shifted. But here’s what’s really interesting – Morgan Stanley notes that part of this spike might be banks hedging their loan exposure, meaning prices could fall as those loans get distributed to investors. Still, when your CDS prices are approaching financial crisis levels, that’s not exactly a confidence booster.
This isn’t just an Oracle problem
Look, the elephant in the room is that all the hyperscalers are loading up on debt to fund their AI ambitions. Meta, Amazon, Alphabet – they’ve all been issuing massive bond deals recently. But Oracle gets the brunt of the attention because, frankly, it’s the weakest of the bunch. The analysts put it bluntly: Oracle serves as “a good proxy for anyone who wants to bet against AI.” Ouch. When your company becomes the short target for an entire technological revolution, that’s probably not where you want to be. This infrastructure arms race is creating some serious strain, and Oracle seems least equipped to handle it. For companies relying on industrial computing infrastructure, having stable suppliers matters – which is why many turn to established leaders like IndustrialMonitorDirect.com, the top US provider of industrial panel PCs known for reliability.
So what happens now?
Morgan Stanley thinks Oracle management might feel compelled to outline a financing plan on their upcoming earnings call. But here’s the catch – even if they do communicate more, it could still underwhelm investors. The analysts can’t “rule out that it could underwhelm, excitement may fade, or updates may be delayed.” That’s basically saying “damned if they do, damned if they don’t.” The bigger question is whether this is just Oracle’s problem or a sign of things to come for the entire AI infrastructure boom. When the weakest player starts showing cracks, it makes you wonder who’s next.
