Why is Oracle’s debt suddenly flashing warning signs? Its 8% bond yield raises a bigger question about who will finance the trillion-dollar AI data-center boom

Oracle’s credit market is sending a signal that is harder to ignore. On Thursday, the cost of insuring Oracle’s debt through credit default swaps reached a record high. At the same time, the yield on the company’s 6.7% bonds due in 2056 moved above 8% for the first time.

That does not mean Oracle is on the verge of default. It does show that investors are demanding more compensation to take on its debt.

Oracle currently carries a Baa2 rating from Moody’s and BBB- from S&P, both at the lowest investment-grade level. A downgrade could push the company into junk territory. According to the analysis cited by Seeking Alpha, that could affect roughly $120 billion of Oracle bonds held in investment-grade indexes.

Why did Oracle’s debt suddenly become a bigger concern?

Oracle has been spending at a remarkable pace to expand its data-center capacity. In its latest results, the company reported $28.5 billion in capital spending during a single quarter. Free cash flow was negative by $5.4 billion during the period.

The company has also guided toward roughly $90 billion to $95 billion in capital expenditure for the full year.

That spending is tied closely to the AI infrastructure boom. Cloud capacity, data centers, networking equipment and advanced chips all require enormous amounts of capital before they can generate revenue.

Oracle has partly turned to the bond market and other financing sources to fund that expansion. The concern for investors is straightforward: borrowing becomes less attractive when the cost of debt rises at the same time that spending remains exceptionally high.

What does the New Mexico data center have to do with it?

The credit-market move came as reports emerged that Oracle had issued a force majeure notice involving the developer of its massive Project Jupiter data center in New Mexico.

The project has faced regulatory and pipeline-related hurdles, according to reports. Oracle's notice is intended to protect the company from certain financial obligations if the facility cannot open as scheduled in 2028.

Why are investors watching other AI companies too?

Oracle is not the only technology company seeing pressure in the credit market. Credit default swaps have also widened for companies including Amazon, Alphabet, Microsoft, Meta and Nvidia. Apollo economist Torsten Slok has tracked a basket of Amazon, Google, Microsoft and Oracle and found five-year CDS spreads above 100 basis points, the highest level in his eight-year series.

The difference between these companies and banks is also notable. Slok said CDS costs for a group of major U.S. banks remained around 40 basis points while hyperscaler protection costs moved higher.

How much money is actually being committed to AI infrastructure?

Amazon, Alphabet, Meta, Microsoft and Oracle are together expected to spend around $700 billion on capital expenditure in 2026, according to the figures cited in the supplied reporting. Analysts at Bank of America and Evercore expect that number to exceed $1 trillion in 2027.

The spending is producing real demand. Nvidia’s data-center revenue, for example, reached $89 billion in its latest reported quarter, up 117% from a year earlier.