Oracle Corp’s bonds have taken a hit in recent days following a report that the cloud services and artificial intelligence provider plans to add another $38 billion to its heavy debt load to finance its AI infrastructure, according to analysts and investors.
Oracle did not immediately respond to a request for comment.
Oracle has invested billions of dollars to develop its cloud and AI infrastructure this year. With about $104 billion in outstanding debt, including $18 billion in bonds, the company is spending more than it earns from its operations while betting on future profits through contracts with startups like OpenAI, owned by Sam Altman.
“What’s interesting is that most of the (big tech companies) are trying to maintain their share buyback programs at the same time they’re spending on capital (capex) right now, and to do that they’re actually borrowing, so they’re using debt,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.
Renewed doubts about the safety of this bet appeared to have emerged in trading in Oracle bonds this week, following a CNBC report, opens new tab, on Thursday, that Oracle plans to take on another $38 billion in debt.
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The price of Oracle’s bonds due in 2033 with a 4.9% coupon has fallen, raising yields by more than three basis points in the past two weeks, while the yield on its newer bonds due in 2032 with a 4.8% coupon has risen nearly two basis points in a week, according to market participants.
“There is definitely selling pressure,” said Stu Novick, technology sector credit analyst at corporate bond research firm Gimme Credit.
“The numbers are huge (and) a lot of people are asking how they are going to make money from these things.”
With information from Reuters.
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