The market is overthinking it! BNP Paribas backs up Oracle (ORCL.US): AI infrastructure does not require additional 100 billion US dollars in debt

The Zhitong Finance App learned that while the boom in artificial intelligence (AI) investment continues, the market previously feared that Oracle (ORCL.US) might issue additional debt of up to 100 billion US dollars to fund its AI ambitions. Concerns about Oracle's debt situation prompted its five-year credit default swap (CDS) to once soar to its highest level in three years. However, BNP Paribas believes that the actual additional debt issued by Oracle will be far less than 100 billion US dollars.

BNP Paribas analyst Stefan Slowinski said in a customer report: “We estimate that Oracle only needs to raise $25 billion to $350 billion in additional debt to fund its AI infrastructure.” He added that although the $25 billion to $30 billion debt increase is in addition to the company's recently issued $18 billion bond, it is still far below the $100 billion some investors are concerned about.

Stefan Slowinski added, “Given the high profit margins of Oracle's cloud infrastructure business, we believe the company can bear a higher debt burden, and management can also seek other financing options (such as vendor financing) to ease the pressure on upfront cash expenses.” The analyst gave Oracle an “plus” rating, but lowered the target price from $430 to $290 due to increased capital expenditure and exchange rate changes.

Furthermore, Stefan Slowinski said that the market's current pricing for the collaboration between Oracle and OpenAI is only “minimal upward.” He added, “We calculated that currently about 84% of Oracle's market capitalization is supported by its non-artificial intelligence business. According to our estimates, the contribution of the Oracle Cloud infrastructure business to earnings per share may reach approximately $13 by fiscal year 2030, which means that as long as the Oracle Cloud infrastructure business gets close to its target, there will be an asymmetric upside.”

Tech giant debt frenzy intensifies market concerns, Oracle “bears the brunt”

At a time when market concerns about the AI bubble are heating up, Wall Street is increasingly worried that tech giants will incur high debts to build AI infrastructure. While huge AI spending by big tech companies is nothing new, raising record debt for it is a new situation. What worries investors even more is that this trend breaks the practice of recent years — in the past, technology companies used huge cash reserves on hand to pay for capital expenses. Today, the use of leverage and the cyclical nature of many financing transactions have introduced risks that have never been seen before.

According to the data, the top five AI spending companies — Amazon (AMZN.US), Alphabet (GOOGL.US), Microsoft (MSFT.US), Meta Platforms (META.US), and Oracle — together raised a record $108 billion in debt in 2025, more than three times the average of the past nine years.

Among them, Oracle's debt issuance behavior received special attention. The company issued $18 billion in US investment-grade bonds in September to increase AI spending, and related banks also initiated $38 billion in debt offerings to fund Oracle-related data centers. Since then, Oracle's stock price soared in September, but since hitting a record high on September 10, the stock has plummeted nearly 42% as investors reassessed the impact of the company's aggressive capital expenditure on its balance sheet and how it is financing huge capital expenses.

Oracle predicts that its capital expenditure for the current fiscal year will be $35 billion, most of which will be spent on its cloud business. At the same time, this huge expense is hurting the company's balance sheet. Free cash flow is expected to be negative $9.7 billion this year, and last year the company had negative free cash flow for the first time since 1990. More importantly, Oracle's free cash flow will be further reduced over the next two fiscal years, and may reach negative $24.3 billion by fiscal year 2028.

S&P Global Ratings has revised Oracle's outlook to “negative,” “due to its anticipated capital expenditure and debt issuance to fund the accelerated growth of AI infrastructure, which has strained its credit situation.”

Barclays Bank also released a research report in early November, downgrading Oracle's debt rating to “reduced holdings” and warned that it could run out of cash in November 2026. The core logic of Barclays's prediction is that Oracle's capital expenditure to fulfill its AI contract has exceeded what its free cash flow can support, forcing it to rely on external financing. The bank's model shows that even if capital expenditure does not increase, Oracle's cash reserves (about US$11 billion so far) may be exhausted by November 2026, when the company will face refinancing needs.

Risk secretly accumulates

Until recently, capital expenditure was seen as a necessary condition for companies to participate in AI. Some investors even saw it as a positive reflection of the company's confidence. But as Wall Street professionals look to see stronger returns on investment, capital spending is under increasing scrutiny, and adding debt to the equation will only exacerbate the problem.

Brian Levitt, chief global market strategist at Invesco, warned: “Some companies promise large-scale investments, but their own cash flow is insufficient to support them, and they may need to take on huge debts to finance future investments.” “This model may work until there is no turmoil in the credit market. But I think the market is paying more and more attention to this risk.”

The increase in the debt of tech giants, including Oracle, has also brought a new layer of concern to the market. Although the market is fueled by AI's promise of high returns, investors are wary that the technology has yet to generate the profits needed to justify such large-scale capital expenditure. Investment management company Sage Advisory said in an earlier report that AI capital expenditure is expected to rise to 600 billion US dollars by 2027, up from over 200 billion US dollars in 2024 and nearly 400 billion US dollars in 2025, while net debt issuance is expected to reach 100 billion US dollars in 2026.

Furthermore, the increase in the size of debt issued by tech giants has raised questions about whether the bond market can absorb this surge in supply and heightened concerns about growing AI spending — concerns that dragged US stocks back sharply in November after six months of continuous gains.

Although investor demand for technology company bonds has always been strong, investors will require significant new issuance premiums to absorb some of the new bonds. US investment-grade credit spreads (the premium paid by high-rated companies above treasury yields to attract investor demand) are still historically low, but they have risen slightly in recent weeks, partly reflecting concerns about a new wave of bond supply impacting the market.

Despite increased leverage, investors are generally positive about tech giants due to their long-lasting profit growth and strong competitive position. According to UBS estimates, about 80% to 90% of the planned capital expenditure of the tech giant comes from its own cash flow. According to Sage Advisory's research report, top hyperscale companies are expected to shift from more cash than debt to only a modest level of borrowing, and the leverage ratio will remain below 1 times, which means their total debt will be less than their earnings. Goldman Sachs analysts said that with the exception of Oracle, hyperscale companies can absorb up to 700 billion US dollars in additional debt, and are still considered safe, and the leverage ratio will be lower than typical A+ rated companies.