(Bloomberg) -- Oracle Corp. is facing intensifying scrutiny from credit markets as its total debt has surged to $149 billion, sending the cost to insure against default to the highest level since 2008.
The spike in Oracle’s credit default swaps (CDS) signals rising concern among bond investors about the company's financial health, a view that contrasts sharply with the bullish sentiment from equity analysts. "The divergence between credit and equity sentiment is stark," said a credit strategist at a major bank. "While stock analysts are focused on the cloud growth story, the bond market is pricing in a significant risk of financial stress."
The software giant's debt has ballooned in recent years to finance a string of acquisitions, most notably the $28 billion purchase of Cerner. While these deals were intended to accelerate Oracle's push into the cloud and healthcare sectors, they have also dramatically increased its leverage. Total debt now stands at $149 billion, a figure that has more than doubled since 2018.
This growing debt pile has not gone unnoticed by credit investors. The price of five-year CDS on Oracle debt has climbed to levels not seen since the global financial crisis, indicating a perceived increase in the probability of default. This bearish view from the credit market stands in contrast to the 28 out of 35 Wall Street analysts who rate the stock as a "Buy" or "Strong Buy," with a median price target implying 60% upside from its current level.
The disconnect highlights a classic market debate: whether the potential for future growth outweighs the risks of a highly leveraged balance sheet. For now, equity investors seem to be siding with the growth narrative, while credit investors are sounding a note of caution.
The rising cost of credit insurance could eventually impact Oracle's ability to borrow and refinance its massive debt load, potentially forcing the company to slow its acquisition strategy or divert cash flow to debt repayment. Investors will be closely watching the company's next earnings report for any commentary on its debt levels and capital allocation plans.
This article is for informational purposes only and does not constitute investment advice.
