Morgan Stanley Flags Oracle Debt Risk — What Traders Should Watch

Unusual Whales

05 Dec 2025 • 2 min read

Oracle’s AI Build-out Backfires — Debt Risk Soars

This week, Morgan Stanley dropped a blunt warning: after years of borrowing to finance a massive AI and data-center expansion, Oracle is now showing signs of serious balance-sheet stress.

The 5-year credit-default swap (CDS) for Oracle just jumped to 125 basis points — the highest point in three years.
Analysts say that if things worsen, CDS spreads could approach ~200 basis points — levels last seen during the 2008 financial crisis.
Behind the spike: Oracle has issued roughly $18 B in bonds this year and taken on $56 B in project/construction financing tied to AI-datacenter buildouts — the most aggressive infrastructure push in the company’s history.

In short: the lofty AI ambitions that helped send Oracle to new highs may now threaten to sink the company under its own leverage.

Why Wall Street Is Rattled

Debt Risk > Growth Hype

What once looked like a potential long-term AI cloud winner now resembles a high-stakes infrastructure bet built on borrowed money. As credit markets re-price that risk, debt investors are taking cover — not from earnings misses, but from financing trouble.

Morgan Stanley’s credit desk has reportedly shut down the “buy bond” side of its trades on Oracle, opting instead to buy CDS protection — signaling that debt investors are preparing for downside.

Obsolescence Risk

Part of the concern: if Oracle moves too slowly on its data-center buildouts, or if AI hardware cycles accelerate — the firm risks investing in infrastructure that becomes obsolete before it pays off. That would leave a massive debt overhang without corresponding cash flow.

⚠Wall of Debt Coming

More broadly, this situation underscores a larger dynamic seen across AI-heavy tech firms: cheap debt + high capital expenditures + aggressive growth plans = structural risk. For traders and options players — this spells volatility, hedging demand, and asymmetric risk.

What This Means for the Stock & Options Market

Here’s how all this could play out — and which stocks you should be watching on Unusual Whales.

Likely Impact on Oracle (ORCL)

Expect rising implied volatility and skew: as credit risk mounts, equity holders may begin to hedge. That often shows up in elevated put volume and a widening gap between put and call implied vol.
Earnings and cash-flow resets might push the stock lower — or at least keep it choppy — especially if debt servicing eats into free-cash flow.
If Oracle issues new debt / bonds and markets remain jittery, bond yields and equity volatility could rise further, creating a feedback loop.

🔎 Names & Sectors to Watch on Unusual Whales

ORCL — obvious first watch. Monitor CDS activity, options skew, and upcoming earnings calls for data-center cap-ex disclosures.
Other “AI-infrastructure” or cloud-spending firms — especially those using heavy leverage to build capacity. Their bonds and equity could see ripple effects as markets re-assess risk.
Broader tech groups that’ve ridden the AI wave — any news around rising debt, cap-ex, or credit pressure could spark volatility across the sector.

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A $300 B AI build-out looked like Oracle’s ticket to the front row of the tech boom. Turns out, it might be a seat on the wrecking ball if the financing doesn’t hold up. For traders, this isn’t just about cloud hype — it’s about timed leverage, rising credit stress, and a volatility reset that could ripple across the tech sector.