Oracle's cost of insuring against a default has hit a record, with five-year credit default swaps trading near 203 basis points, meaning investors now pay roughly $203,000 a year to insure $10 million of the company's debt against non-payment, The Kobeissi Letter reports. That level has more than quadrupled since mid-2025 and now sits above where Oracle's CDS traded at the peak of the 2008 financial crisis. The stress shows up in the bond market too. Oracle's 6.7% notes due 2056 widened 8 basis points this week to a 263 basis point spread over Treasurys, and its 5.7% notes due 2036 widened 9 basis points to 205. S&P Global Ratings downgraded Oracle to BBB-, one notch above junk, on July 9th, citing the company's fast-growing spending on AI data centers. Oracle has taken on debt at an unusual pace to build out cloud capacity for AI customers including OpenAI, and investors are increasingly pricing in the risk that revenue from those contracts doesn't arrive fast enough to cover the bill. A further downgrade to junk status would raise Oracle's borrowing costs even more and could trigger selling by funds that only hold investment-grade debt.
Why it matters · If a company at the center of the AI buildout can't convince credit markets it will cover its own debt, that's a warning sign for every hyperscaler financing capex with borrowed money, not just Oracle.
Worth asking · Oracle's CDS spread is now pricing in real default risk even as its AI cloud backlog keeps growing. Is this a temporary scare over AI capex debt, or the first crack in the hyperscaler credit story?