Morgan Stanley now warns that Oracle’s total financial obligations — including bonds and long-term data-center leases — could almost triple to $290 billion by FY2028.
What makes the situation more serious is Oracle’s cash profile. The company posted negative free cash flow in 2025. This is its weakest level in over twenty years and the first time since 1999 that Oracle’s free cash flow has turned negative.
Both S&P Global Ratings and Moody’s have revised their outlook on Oracle to negativesignaling growing concern that adjusted leverage could rise above 4x debt-to-EBITDA between fiscal years 2027 and 2028.
The stress is showing up sharply in the credit default swap market. Trading volumes tied to Oracle’s CDS have exploded to about $5 billion over the seven weeks ending November 14, 2025. One year ago, the comparable period saw only $200 million in activity.
The cost to insure Oracle’s five-year debt has jumped to 125 basis pointsits highest level in three years. Morgan Stanley expects the spread to break 150 bps in the near term and possibly climb toward 200 bps. That level would mirror the 2008 crisis peak of 198 bps.
The broader AI sector is in the middle of an enormous investment cycle. Industrywide capital spending is on track to top $600 billion by 2027. But credit health inside the sector is splitting into two clear categories.At the top, companies like Microsoft, Apple, Nvidia, Meta, and Alphabet continue to maintain strong balance sheets. Their cash generation, interest coverage, and credit ratings remain robust despite rising AI-related borrowing.
Oracle, by contrast, is moving in the opposite direction as leverage climbs and liquidity tightens.
The divergence has created one of the clearest credit bifurcations in the modern tech era.
Is Oracle’s credit risk now flashing crisis-level signals?
Oracle’s five-year credit default swaps jumped to 125 basis points in November 2025the highest in three years. Morgan Stanley says CDS spreads could soon break 150 bps and may reach 200 bps in 2026a level last seen during the 2008 financial crisis.
The bank warns that unless Oracle outlines a long-term funding strategy, investors will keep hedging aggressively, which will drive protection costs even higher.
Analysts Lindsay Tyler and David Hamburger say the company is caught in a widening funding gap. Its balance sheet is swelling as it pours money into hyperscale AI data centers. They also warn of “obsolescence risk” — the possibility that Oracle is investing in infrastructure that may become outdated before it fully pays off.
Oracle has launched the most capital-intensive buildout in its history. It raised $18 billion in bonds this year alone. It is also linked to more than $56 billion in project-finance loansincluding an $18 billion data-center loan in New Mexico and a $38 billion package tied to new sites in Texas and Wisconsin.
Total debt has climbed to $104 billion in FY2025up from $90.5 billion in FY2023 — a sharp 15% increase in two years.
Morgan Stanley projects Oracle’s total financial obligations could nearly triple to $290 billion by FY2028once leases, project financing, and long-term commitments are included.
The most alarming metric: negative free cash flowthe weakest in over 20 years and the first negative reading since 1999. Both S&P Global and Moody’s have moved Oracle’s outlook to negative and warn leverage could exceed 4x debt-to-EBITDA by 2027–2028.
Why Oracle stands alone among hyperscalers in distress
The broader AI sector is undergoing a massive debt cycle. Major tech companies have collectively raised $121 billion in debt in 2025far above the five-year average of $28 billion. But unlike Oracle, the largest players maintain strong balance sheets:
Microsoft
Microsoft remains the industry’s most financially secure giant. It holds a rare AAA credit ratingshared only with the U.S. government. The company issued no new bonds in 2025choosing to fund AI expansion entirely through internal cash. It plans to double global data-center capacity by 2027.
Apple
Apple carries roughly $107 billion in debt but maintains $65 billion in cash.
Its net debt is only $41.5 billion. Debt-to-EBITDA sits at 0.31and the company covers its interest bill 673 times with EBIT.
Nvidia
S&P upgraded Nvidia’s outlook to positive in late 2024. The company cut long-term debt from $11.5 billion in January to $7.9 billion by Q3 2025.
Still, analysts highlight its $110 billion exposure through vendor financing to AI startups such as CoreWeave, OpenAI, and xAI. If AI workloads slow, this risk could rise.
Meta
Meta completed a $30 billion bond sale in October 2025 — the year’s largest corporate issuance. To protect its AA ratingthe company also shifted $27 billion of AI infrastructure into an off-balance-sheet joint venture with Blue Owl Capital.
Alphabet
Alphabet maintains one of the strongest balance sheets in the tech sector. It carries about $48 billion in debt and holds cash exceeding $100 billion.
Its capex remains fully funded by operating cash flow.
Across the top AI spenders — Amazon, Google, Meta, Microsoft, and Oracle — the group has raised $121 billion in debt so far in 2025. That is more than 4× the $28 billion yearly average seen in the past five years.
Goldman Sachs estimates that across 1,300 major tech firms, total debt now sits at $1.35 trillionup fourfold from a decade ago.
Oracle, by contrast, is the only hyperscaler with CDS spreads approaching recessionary stress. Trading volume in Oracle CDS exploded to $5 billion over seven weeks ending November 14 — up from just $200 million in the same period last year.
Wall Street watches December 15 earnings for a financing roadmap
Oracle will report Q2 FY26 earnings on December 15. Analysts expect $1.64 EPS on $16.20 billion in revenue. But the financial results matter less than the message.
Investors want a clear plan for funding its multiyear AI expansion, including the Stargate supercluster project. Morgan Stanley says its stance has shifted from “buy the bonds” to “buy credit protection,” signaling rising skepticism in the debt markets.
Barclays has warned that Oracle could face a material funding gap by FY2027 and that cash reserves may be depleted by late 2026 if capital spending keeps rising.
Is ORCL stock still a buy ahead of earnings?
Despite credit worries, equity analysts remain optimistic. Wall Street maintains a Moderate Buy rating based on 19 Buy and 8 Hold recommendations in the past three months.
The average price target of $364.91 implies a strong 78% upside from current levels.
The bullish argument: Oracle remains deeply embedded in enterprise software and is a key supplier of compute capacity to OpenAI and other AI customers.
The bearish argument: Growing leverage, rising CDS spreads, and weakening free cash flow may force Oracle to slow its AI investments or raise more debt at higher rates.
For now, the credit market — not the stock market — is sending the louder warning.