The AI infrastructure arms race has unleashed a surge of corporate bond issuance across the technology sector. Hyperscalers like Google, Amazon, Meta, and Oracle have shifted from funding AI buildouts with free cash flow to tapping debt markets, underscoring the existential nature of these investments. Market estimates put tech sector supply at roughly $1.5 trillion over the next three years. The sheer scale of new debt issuance has forced investors to reassess whether the economics of relentless AI capex are truly sustainable.

For credit investors, hedging the surge in tech sector debt tied to AI capex has proven challenging. Most investment grade issuers, such as Google (GOOG), Amazon (AMZN), and Meta (META), maintain fortress balance sheets and trade with minimal spread volatility, leaving few liquid options to express skepticism. That made Oracle (ORCL) the standout candidate. With a mid-BBB rating and CDS trading near 40 bps in September, ORCL offered a cheap, efficient hedge against tech sector risk and a proxy for the AI buildout. Its jumbo issuance linked to infrastructure expansion amplified that role. Fast forward: Oracle CDS has repriced sharply to ~120 bps, flipping what was once a cheap hedge into a negative carry position. Given the company’s strong fundamentals and low default risk, we expect spreads to retrace as technical pressure eases.

Operationally, Oracle’s core business is performing well. Over the last 12 months, the company generated $25.2 billion in EBITDA and $21.5 billion in operating cash flow. Its four main cloud infrastructure segments have delivered strong year‑over‑year growth: Enterprise Cloud grew 33%, Distributed Cloud grew 77%, Cloud Native Services grew 49%, and AI Infrastructure was up an impressive 117%. These figures highlight that Oracle is experiencing robust growth along its business lines, particularly AI infrastructure, which has more than doubled year‑over‑year. Oracle is undoubtedly committing to sizeable AI investments that will pressure free cash flow in the near term. However, EBITDA growth in its core business and a slowdown in future capex will create substantial free cash flow down the road and leave Oracle as a rapidly improving credit.

The AI capex cycle is reshaping the credit landscape, creating both technical headwinds and long-term opportunities. Near-term supply pressure and hedging challenges have fueled volatility among technology issuers. For Oracle, as borrowing normalizes and growth materializes, we expect credit spreads to tighten, leaving today’s pricing as a market dislocation rather than the new normal.