Oracle (ORCL) Stock: Morgan Stanley Predicts Rising Debt Risk Through 2026

TLDR

• Oracle’s credit default swap costs hit 1.25 percentage points in November, the highest level in three years
• Morgan Stanley predicts CDS could climb to 2 percentage points in 2026 without clearer financing details
• The company raised $18 billion in bonds and is linked to $56 billion in data center construction loans
• Banks and investors are heavily hedging Oracle debt due to concerns over AI spending plans
• Oracle’s December 15 earnings call will be watched closely for details on funding strategy

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Oracle’s debt has become a worry for investors as the tech giant pours money into artificial intelligence infrastructure. The cost to protect against an Oracle default reached its highest point since 2021.

Morgan Stanley analysts Lindsay Tyler and David Hamburger released a report warning that Oracle’s credit risk could worsen. The five-year credit default swaps climbed to 1.25 percentage points this month.

Oracle Corporation, ORCL

These protection costs could push past 1.5 percentage points soon. They might even approach 2 percentage points in 2026 if Oracle stays quiet about its funding plans.

That would match levels last seen during the 2008 financial crisis. Back then, Oracle’s CDS peaked at 1.98 percentage points.

The company has been on a borrowing spree. Oracle raised $18 billion through bond sales in September.

Then came the construction loans. A group of banks arranged an $18 billion project loan for a New Mexico data center campus where Oracle will be the tenant.

Banks are also working on a separate $38 billion loan package. This money will help build data centers in Texas and Wisconsin through Vantage Data Centers.

Heavy Hedging Drives Up Costs

Morgan Stanley says banks involved in these construction loans are driving much of the trading in Oracle’s credit default swaps. This hedging activity will likely continue.

The analysts noted that reported construction loans have become a major driver of hedging recently. These hedges protect lenders from potential losses.

Some hedges might unwind once banks distribute the loans to other parties. But new hedges could emerge as other investors get involved.

The construction debt needs won’t stop after the current projects either. More data centers mean more loans and more hedging.

Oracle’s credit default swaps have performed worse than the broader investment-grade index. The company’s bonds have also lagged behind the Bloomberg high-grade index.

December Earnings in Focus

Oracle will report second quarter fiscal 2026 results on December 15. Wall Street expects earnings of $1.64 per share on revenue of $16.20 billion.

Morgan Stanley believes this earnings call matters more than usual. Investors want a clear roadmap for funding the AI expansion and data center pipeline.

The Stargate project remains a question mark. Details on capital spending plans are scarce.

Stock concerns have started to appear too. This pressure might push management to share more about their financing strategy.

Morgan Stanley changed its recommendation. The firm previously suggested buying Oracle bonds and CDS together in a basis trade.

Now they say buying credit protection alone makes more sense. The analysts closed the bond-buying part of their trade.

They’re keeping the credit default swap protection. Morgan Stanley thinks this approach will capture a greater spread move.

Oracle declined to comment on the report. The company’s stock closed at $204.96 on November 26, up 4.02% for the day.

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