The most important diagram in AI today? Oracle’s standard swaps are broken

Investing.com – Shares of Oracle Corporation (NYSE:ORCL) fell as much as 37% from a record high hit in September, as investors grew wary of debt-fueled entry into artificial intelligence infrastructure and bond and credit default swap (CDS) markets expressed caution.

In layman’s terms, a CDS is insurance against the bankruptcy of a company. When the price of this insurance increases, investors become nervous.

Investors dumped Oracle bonds after news that the company plans to raise about $38 billion in debt to finance the expansion of its cloud and AI solutions. The move led to weaker bond prices and higher yields, with market participants pointing to stress in a previously stable investment-grade issuer.

Oracle 5-year CDS (Source: Bloomberg)

Traders have accelerated hedging across 5-year CDS contracts, pointing to growing concerns about credit risk in the AI ​​arms race. Market participants say the underlying catalyst is the scale and speed of AI infrastructure investment across Europe.