Oracle’s debt has entered the spotlight after reports reveal the company has taken on $56 billion in new borrowing, largely to fund its expansive push into AI infrastructure and cloud services. For investors, analysts, and the tech market, the move raises serious questions about risk, timing and execution.
What’s Happening
- Oracle borrowed roughly $18 billion via new bond issuances and $38 billion via fresh loans, bringing new borrowing to about $56 billion.
- The company’s trailing twelve-month free cash flow turned deeply negative, roughly –$5.9 billion, the weakest in decades.
- Its debt-to-equity ratio has surged to about 520%, far above industry norms.
- Earlier estimates placed its total long-term debt at ~$96 billion, with forecasts suggesting it could reach ~$290 billion by 2028.
Why Oracle Is Borrowing So Much
Oracle is aggressively scaling its data-centre, cloud and AI infrastructure to compete in the high-stakes enterprise AI market. Some of the major drivers:
- Major deals such as a multi-billion dollar contract with OpenAI.
- Massive capital expenditures: building GPU clusters, data centres, storage, networking.
- Desire to catch up / scale rapidly in cloud against rivals.
- Using debt financing to maintain pace, rather than relying solely on internal cash flows.
Key Risks and Implications
1. Financial flexibility under pressure
With negative free cash flow and high leverage, Oracle’s ability to self-fund may be constrained.
2. Interest rate / refinancing risk
Borrowing costs are higher now; future refinancing might be more expensive.
3. Execution risk
Huge bets on revenue from AI/cloud need to materialise — delay or underperformance increases the risk.
4. Credit and investor sentiment
Credit rating agencies and bond investors are watching closely; bond yields are rising.
5. Comparison with peers
Oracle’s debt-to-equity and cash flow metrics look far weaker compared with major cloud competitors.
6. Large bet on a single partner
Heavy dependency on OpenAI contract and AI infrastructure payoffs amplifies risk if that doesn’t scale as expected.
7. Market / shareholder impact
Concerns around debt and growth trade-offs may weigh on stock/bond performance and valuation.
Looking Ahead: What to Watch
- Oracle’s upcoming free cash-flow and capital-spending reports: will cash flow turn positive?
- Debt maturity schedules: how much debt is due when? Can it be refinanced affordably?
- Execution of AI/cloud contracts: are the projected revenues showing up?
- Updates from credit rating agencies and bond market behaviour (yields, spreads).
- Market reaction: Does Oracle’s stock or bonds reflect ongoing concern about the debt burden?
Conclusion
Oracle’s decision to borrow roughly $56 billion in new debt signals the scale of its ambition in AI and cloud infrastructure. But it also represents a major financial risk — one that requires successful execution, profitable growth and disciplined capital management. If Oracle can manage the debt burden and deliver on its AI vision, the payoff could be significant. If not, the borrowing spree may become a long-term liability.
