Oracle Corporation's (NYSE: ORCL) credit default swaps (CDS) have surged significantly in 2025, reflecting growing investor concerns about its rising debt levels linked to aggressive investments in AI infrastructure. The CDS spread jumped to nearly 80 basis points from around 55 earlier this year, with peaks reaching as high as 1.11%, indicating increased perceived credit risk. This surge in CDS activity accompanies Oracle's plan to issue about $38 billion in new bonds to fund AI-driven data center buildouts and its substantial debt-financed expansion.
The market views Oracle's (NYSE: ORCL) leverage risk as elevated due to debt projections soaring to approximately $290 billion by 2028 from about $100 billion currently. The spike in CDS reflects investors hedging against the risk that Oracle's massive AI investments and capital expenditures may strain its financial stability. Barclays downgraded Oracle’s debt rating to "Underweight," warning of possible further downgrades close to junk bond status, as the company faces high capital expenditures exceeding free cash flow capacity with a debt-to-equity ratio around 500%, highest among major tech firms.
This CDS spike is regarded as a "hedge against an AI crash" because Oracle's AI infrastructure bet involves large-scale financial risk amid uncertainties on return timelines. Trading volume in Oracle's CDS has also surged dramatically, with about $5 billion in contracts traded over seven weeks ending mid-November 2025, a sharp rise from just $200 million a year ago. The market is closely watching how Oracle manages its debt amid rising borrowing costs and AI sector volatility, signaling a more cautious stance by investors toward AI-related tech debt risks.
