Oracle NYSE:ORCL, an enterprise-software and cloud-infrastructure company investing heavily in AI capacity, fell approximately 2.3% in Wednesday's regular-session trading as investors assessed increasing costs for insuring its debt against default. Oracle credit-default swaps traded near 200 basis points, according to S&P Global Market Intelligence data cited by Reuters. A 200-basis-point CDS costs approximately $2 annually for every $100 of debt insured.
Oracle's level was considerably higher than approximately 78 basis points for NVIDIA NASDAQ:NVDA, an AI-chip designer, and 93 basis points for Meta Platforms NASDAQ:META, a social-media and technology company. An index tracking investment-grade credit-default swaps traded near 53 basis points. Technology-linked CDS trading reached almost $650 million per day during the second quarter, increasing 20% sequentially and nearly 600% from one year earlier, according to Depository Trust & Clearing Corporation data.
The single-name CDS market represents approximately $9 trillion, compared with more than $150 trillion of global bonds outstanding. Oracle's 200-basis-point price is almost four times the 53-basis-point investment-grade index, indicating that investors currently require substantially greater compensation to insure its debt. However, a wider CDS spread represents market pricing of perceived risk rather than a prediction that Oracle will default. Reuters noted that increasing protection costs can pressure bond prices and raise future borrowing expenses. Investors may now monitor whether Oracle's AI infrastructure generates sufficient returns to stabilize its bond spreads and financing costs.