Market Overlooks! French bank BNP Paribas backs Oracle Corporation (ORCL.US): AI infrastructure does not require issuing billions of dollars in debt.

Amid the ongoing AI investment boom, the market had previously been concerned that Oracle Corporation (ORCL.US) would issue up to $100 billion in debt to fund its AI ambitions. Concerns about Oracle Corporation's debt situation prompted its five-year credit default swaps (CDS) to soar to the highest level in three years. However, French bank BNP Paribas believes that the actual amount of debt issued by Oracle Corporation will be far less than $100 billion. BNP Paribas analyst Stefan Slowinski stated in a client report, "We estimate that Oracle Corporation only needs to issue $25 billion to $35 billion in debt to fund its AI infrastructure development." He added that although the $25 billion to $30 billion in debt issuance is in addition to the $18 billion bonds the company recently issued, it is still significantly lower than the $100 billion that some investors were concerned about. Stefan Slowinski added, "Given Oracle Corporation's high profit margins in its cloud infrastructure business, we believe the company can handle higher debt levels, and management can also seek other financing options (such as vendor financing) to alleviate early cash outflow pressures." The analyst maintained a "hold" rating on Oracle Corporation, but lowered the target price from $430 to $290 due to increased capital expenditures and exchange rate changes. Furthermore, Stefan Slowinski stated that the current market pricing for Oracle Corporation's collaboration with OpenAI is only at the "minimum upside potential." He added, "We calculate that approximately 84% of Oracle Corporation's market value is supported by its non-AI business. Based on our estimates, by the fiscal year 2030, Oracle Corporation's cloud infrastructure business could contribute around $13 per share in earnings, meaning that as long as Oracle Corporation's cloud infrastructure business can approach its target, it will have asymmetric upside potential." Tech giant debt frenzy intensifies market concerns, Oracle Corporation "in the forefront" Amid growing concerns about the AI bubble in the market, Wall Street's worries about tech giants taking on substantial debt to build AI infrastructure are increasing. While large tech companies' massive spending on AI is not new, raising record debt levels for this purpose is a new development. What worries investors even more is that this trend breaks with recent practices - in the past, tech companies have used their large cash reserves to fund capital expenditures. Now, leveraging and the cyclical nature of many financing transactions introduce previously unseen risks. Data shows that the top five companies in AI spending - Amazon.com, Inc. (AMZN.US), Alphabet (GOOGL.US), Microsoft Corporation (MSFT.US), Meta Platforms (META.US), and Oracle Corporation - raised a record $108 billion in debt in 2025, more than three times the nine-year average. Among these, Oracle Corporation's debt issuance has garnered particular attention. The company issued $18 billion in investment-grade bonds in September to increase AI spending, and related banks also initiated a $38 billion debt issuance to support Oracle Corporation-related data centers. Since then, Oracle Corporation's stock price soared in September, but has since plummeted nearly 42% since hitting a historical high on September 10, as investors reassess the company's aggressive capital expenditures and how it will finance its massive capital expenditures. Oracle Corporation forecasts that its current fiscal year capital expenditures will be $35 billion, with most of it going toward its cloud business. Meanwhile, this massive spending is damaging the company's balance sheet, with this year's free cash flow forecasted to be negative $9.7 billion, marking the first time Oracle Corporation has had negative free cash flow since 1990. More importantly, in the next two fiscal years, Oracle Corporation's free cash flow is expected to further decrease, potentially reaching negative $24.3 billion by the fiscal year 2028. S&P Global, Inc. has revised Oracle Corporation's outlook to "negative" as a result of its expected capital expenditures and debt issuance to fund accelerated growth in AI infrastructure, leading to its credit condition becoming tense. Barclays PLC Sponsored ADR also released a research report earlier in November downgrading Oracle Corporation's debt rating to "underweight," and warned that it could run out of cash by November 2026. The core logic of Barclays' prediction is that Oracle Corporation's capital expenditures for fulfilling its AI contracts have exceeded what its free cash flow can support, forcing it to rely on external financing. The bank's model shows that even if capital expenditures do not increase further, Oracle Corporation's cash reserves (currently around $11 billion) could be depleted by November 2026, at which point the company will need refinancing. Risks are quietly accumulating Until recently, capital expenditures were seen as a necessary condition for companies participating in AI. Some investors even viewed it as a positive reflection of corporate confidence. However, as Wall Street professionals hope to see stronger investment returns, capital expenditures are coming under increasing scrutiny, and adding debt to the equation will only exacerbate this issue. Brian Levitt, Chief Global Market Strategist at Invesco, warned, "Some companies commit to massive investments, but their cash flow is insufficient to support them, and they may need to take on significant debt to fund future investments." "This model may work as long as credit markets remain stable. But I believe the market is increasingly paying attention to this risk." The increase in debt among tech giants, including Oracle Corporation, has also brought a new layer of concern to the market. While the market is being driven by promises of high returns from AI, investors remain cautious as this technology has yet to prove the profitability required to justify such massive capital expenditures. Investment management firm Sage Advisory stated in a previous report that AI capital expenditures are expected to reach $600 billion by 2027, exceeding $200 billion in 2024 and nearly $400 billion in 2025, with net debt issuance expected to reach $100 billion in 2026. Moreover, the increase in tech giants' debt issuance has raised questions about whether the bond market can absorb this surge in supply and intensified concerns about the growing AI spending - these worries have dragged down the US stocks in November after six consecutive months of gains. While investor demand for tech company bonds has been strong, investors will demand substantial new issue premiums to absorb some of the new debt. The U.S. investment-grade credit spread (the premium paid by high-rated companies to attract investor demand above the Treasury yield) historically remains low but has risen slightly in recent weeks, partly reflecting concerns about the impact of the new wave of bond supply on the market. With leverage increasing, but due to the enduring profit growth and strong competitive position of companies like CKH Holdings, investors overall remain positive about tech giants. According to estimates from UBS Group AG, around 80% to 90% of the capital expenditures planned by tech giants come from their own cash flow. Sage Advisory's research report states that top mega-caps are expected to transition from being more cash-rich than debt-ridden to having only moderate levels of borrowing, with leverage remaining below 1x, meaning their total debt will be less than their earnings. Analysts at Goldman Sachs Group, Inc. also stated that, apart from Oracle Corporation, mega-cap companies could absorb up to an additional $700 billion in debt and still be considered safe, with leverage remaining lower than that of typical A+ rated companies.