Traders put a one-in-five chance on Oracle defaulting within five years
Credit-default swaps tied to Oracle closed Thursday at a record 261 basis points, in a one-day repricing of AI credit that set records at Broadcom and SpaceX too. Oracle's answer is not less borrowing: Apollo and Goldman Sachs would fund a company that buys the chips and leases them back.
Vincent Jiang · 3 min read
The lenders financing artificial intelligence stopped waiting for a default. On Thursday, October 8, the cost of insuring Oracle's−5.21% — Oracle, down 5.21 percent today debt against default rose 10.5 basis points to a record close of 261 basis points, and swaps tied to Broadcom−3.95% — Broadcom, down 3.95 percent today and SpaceX−1.85% — SpaceX, down 1.85 percent today set records of their own 1. Oracle stock fell 5.5% on the day, Broadcom 4.4%, SpaceX 4.2% 1.
Those prices imply a better-than-20% probability that Oracle defaults within five years, about 16% for SpaceX, and more than 7% for Nvidia−2.80% — Nvidia, down 2.80 percent today, the world's most valuable company 1. By Bloomberg's account, the issue is less about actual deterioration in credit quality than about market saturation 1. The market is charging for the possibility anyway.
Swap prices put a 20%-plus default chance on Oracle within five years
- Implied five-year default probability
- Estimate
Data
| Implied five-year default probability | |
|---|---|
| Oracle (estimate) | 20% |
| SpaceX (estimate) | 16% |
| Nvidia (estimate) | 7% |
The trigger was a revenue revision
The repricing landed the same day OpenAI$1.18T — OpenAI, private, latest valuation $1.18T told investors its annualized revenue reached about $50 billion at the end of September, not the $68 billion circulated weeks earlier; the larger figure had counted partners' gross revenue, to ease comparison with Anthropic$350B — Anthropic, private, latest valuation $350B 234. Oracle, the barometer traders use for AI credit risk 1, now trades 56.8% below its October 2025 high 2. A 10-year Treasury yield that briefly touched 5.36% compounded the pressure 3.
The answer is a lease, not a bond
Bloomberg counts nearly half a trillion dollars of new AI debt priced this year by borrowers led by Oracle, Broadcom and SpaceX, plus nine US high-grade deals of $25 billion or more, a record, mostly in tech 1. Broadcom alone may raise about $600 billion in the coming years 1. Oracle's total debt has climbed from $99.5 billion in November 2024 to $169.1 billion, with free cash flow negative by $28.7 billion over four quarters 5.
Oracle's capital spending has outrun its operating cash for five straight quarters
- Capital expenditure
- Operating cash flow
Data
| Capital expenditure | Operating cash flow | |
|---|---|---|
| Q1 '24 | $1.7B | $5.5B |
| Q2 '24 | $2.8B | $6.1B |
| Q3 '24 | $2.3B | $7.4B |
| Q4 '24 | $4B | $1.3B |
| Q1 '25 | $5.9B | $5.9B |
| Q2 '25 | $9.1B | $6.2B |
| Q3 '25 | $8.5B | $8.1B |
| Q4 '25 | $12B | $2.1B |
| Q1 '26 | $18.6B | $7.2B |
| Q2 '26 | $16.5B | $14.6B |
| Q3 '26 | $28.5B | $23.1B |
Hence the talks with Apollo and Goldman Sachs−0.37% — Goldman Sachs, down 0.37 percent today: outside investors would fund a separate company that buys the chips and leases them to Oracle 6. The structure would cut Oracle's near-term borrowing needs and ease pressure on its credit rating 1. Broadcom is arranging more than $50 billion for OpenAI's custom chips; SpaceX wants $40 billion for Nvidia processors 67.
The risk moves, it does not disappear
The structure has winners. Apollo and Goldman would arrange the machine rather than hold its risk 6, and the swings "create opportunities for traders," in the words of Andrew Dassori, chief investment officer at Wavelength Capital Management 1. Whoever buys the paper takes the exposure, against a buildout Morgan Stanley−1.03% — Morgan Stanley, down 1.03 percent today estimates needs $1.5 trillion of external financing by 2028 7.
Most of these borrowers are profitable, and the strain is saturation more than credit quality 1. The template already runs through junk: a CleanSpark data center leased to a Meta−0.26% — Meta, down 0.26 percent today subsidiary drew about $10 billion of orders for its $2.28 billion September bond, at premiums investors were pushing higher 8. The exposure left is concentration: "correlated risks that may not be fully reflected in current valuations," in T. Rowe Price portfolio manager Steven Kohlenstein's words 1.
Broadcom's financing should close before year-end, and Oracle wants its deal done this year 6. The bill is not coming due; it is being syndicated.
Deepdive
AI-generated from this story and its cited sources. Not investment advice.
