Facing investor concerns about the rising price tag of its ambitious artificial intelligence push, Oracle is using debt and equity to bankroll its massive build-out of data centers and related AI infrastructure.
)
Oracle aims to raise between $45B and $50B in 2026 to fund skyrocketing capital spending tied to the aggressive expansion of its data center footprint.
The financing effort, detailed in a pair of Securities and Exchange Commission filings, includes a bond sale launched Monday that could raise as much as $25B, alongside an equity distribution agreement that would allow Oracle to sell at least $20B of new shares on the New York Stock Exchange.
The software and cloud computing giant published its fundraising plan amid growing concerns about the company’s financial health. While the world’s largest tech companies are all pouring tens of billions of dollars annually into building data centers and other infrastructure to support AI, Wall Street has perceived Oracle’s efforts as particularly high-risk.
The company alluded to these fears, as well as its tenuous credit rating, in a statement Sunday announcing the financing plan.
“This funding plan reflects Oracle's commitment to maintaining an investment-grade rating, prudent capital allocation, balance sheet strength, and transparency with investors as the company continues to expand its Oracle Cloud Infrastructure business,” the statement says.
Compared to other cloud providers like Amazon Web Services and Google, Oracle is spending far more on AI infrastructure relative to its overall value and revenue. It is also taking on a much greater percentage of debt — Oracle’s debt-to-equity ratio is 432%, compared to 11.4% for Google parent Alphabet.
Wall Street had expressed skepticism that Oracle would be able to fund its capital expenditure plans to deliver the computing capacity it has promised customers. Even if the company raises the needed funds, questions have lingered about whether its cloud business will generate sufficient returns to justify the massive investments.
Oracle is also facing questions about the degree to which its fate is tied to OpenAI, a young company facing its own questions about its long-term viability. The two companies inked a $300B contract in September, and Oracle is also providing compute to OpenAI through the high-profile Stargate data center development effort.
With these concerns swirling around the company, Oracle’s stock has dropped by more than 50% since September. Demand for Oracle credit default swaps — effectively bets against the firm being able to pay its debts — has also soared in recent months. Doubts have grown about Oracle’s ability to maintain its investment-grade credit rating as the firm’s debt has traded at close to junk bond prices.
Yet this week's announcement of Oracle’s $50B funding plan seemed to have calmed investors’ nerves. Buoyed by the apparent road map to meeting its capex needs and the inclusion of a significant equity component, shares of Oracle rose Monday following the news, while Oracle CDS issuances plummeted in value. Its stock price was back down Tuesday about 4% as of 3:30 p.m.
In another indicator of shifting investor sentiment, Oracle generated record demand for Monday’s $25B bond sale, Bloomberg reported.
“This directly addresses concerns around how Oracle will fund its elevated CapEx needs while preserving its investment-grade rating,” Mizuho analyst Siti Panigrahi wrote in a note to investors. “Importantly, Oracle's decision to tap the equity market should help alleviate pressure from the recent widening of Oracle CDS spreads and reduce fears of over-reliance on debt financing.”
)
)
)
)
)
)
)
)
)
)
)
)