Oracle's credit risk skyrockets, Morgan Stanley: AI cash burn pressure may reach new highs again.

Morgan Stanley ( latest analysis indicates that Oracle ) has seen a continuous rise in credit default swap ( costs, noting that Oracle's five-year CDS rose to 1.25% per annum on 11/25, reaching a nearly three-year high. At the same time, it warned that if Oracle does not clarify its funding plans to the market soon, the CDS could break 1.5% in the short term and approach the 1.98% record from the 2008 financial crisis next year. However, Oracle declined to comment on this.

AI construction boosts debt, Oracle becomes a market observer AI risk indicator.

Oracle has actively invested in AI construction and data center expansion over the past year, leading to a rapid increase in funding gaps and debt levels. Morgan Stanley pointed out that Oracle's high-leverage position in this wave of AI competition has made it an important reference indicator for measuring “AI risk” in the current credit market.

In September of this year, Oracle raised $18 billion in the U.S. investment-grade bond market. In early November, approximately 20 banks arranged another $18 billion project loan for the construction of a large data center in New Mexico, which will be occupied by Oracle in the future.

Large loans continue to emerge, and construction exposure raises CDS trading volume.

The bank is simultaneously providing an additional $38 billion loan to assist in the development of data center projects in Texas and Wisconsin, led by Vantage Data Centers.

Morgan Stanley pointed out that the construction loans related to Oracle are the main factors driving the recent increase in Oracle CDS trading volume, and this will continue to drive it in the short term. Analysts have noted that over the past two months, it has been evident that this type of construction loan exposure is prompting banks to increase their hedging positions, thereby raising the demand for CDS protection. As can be seen from the chart below:

“Oracle's 5-year CDS soared to 125.36 basis points in November 2025, setting a three-year high, significantly higher than the market investment-grade CDS index of 52.44 basis points. This indicates that Oracle's credit risk has clearly diverged from the market level, and concerns about its default risk are rapidly escalating.”

What is a credit default swap )CDS(

In simple terms, CDS is like “buying insurance for a bond.” When an investor lends money to a company, the biggest fear is that the other party won't be able to pay it back. Therefore, the investor can pay an annual “CDS premium” to a bank or financial institution in exchange for the protection of “if the company goes bankrupt or defaults, you will be compensated.”

If the company does not go bankrupt, the money paid by the investors serves as insurance premiums; if something happens to the company, the bank has to compensate. However, the higher the CDS premium, the more the market is worried that the company will have problems. For example, the Oracle CDS skyrocketing from 0.5% to 1.25% indicates that panic is escalating.

The groups that will buy CDS include:

Bondholders who are afraid of default

Banks for loan hedging

The investor who purely bets on the company's decline.

So, a CDS is turning “whether a company will go bankrupt” into an insurable product that can be bought and sold; the more expensive the premium, the more the market fears.

Loan transfers may be initiated, and the demand for hedging remains difficult to reduce.

Morgan Stanley believes that in the future, if banks sell part of their loans to other investors, the current CDS hedging positions may be unwound, but the new takers may also activate their own hedging in the future.

Analysts added that whether it is Vantage or the subsequent construction plans in New Mexico, it means that the related hedging demand is unlikely to decline rapidly.

Multiple parties are expanding hedging operations, with credit performance continuing to lag behind the market.

Analysts point out that the deterioration of credit and increased uncertainty have prompted bondholders, lending banks, and thematic investors to strengthen their hedging, causing Oracle CDS to underperform compared to the investment-grade CDX index.

Oracle's corporate bonds are similarly lagging behind the Bloomberg high-grade bond index. Additionally, increasing hedging demand and weakening market sentiment are beginning to affect Oracle's stock price. Analysts believe this may prompt Oracle's management to provide further explanations on funding plans during the next quarterly earnings call, including the StarGate project, data center investments, and capital expenditures.

Readjust the basis trading strategy, Morgan Stanley recommends buying CDS.

Morgan Stanley has previously advised investors to execute basis trades by buying Oracle corporate bonds and simultaneously buying CDS, as they expect the CDS to weaken more than the bonds.

However, the latest report shows that analysts no longer recommend buying Oracle's corporate bonds, only retaining the strategy of “buying CDS protection,” believing that solely doing CDS is more efficient than holding bonds simultaneously and can better capture the future expansion of interest rate spreads.

) Note: Basis Trading, a strategy that takes advantage of the different response speeds of the bond market and the CDS market to profit from the price difference between the two. (

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This article discusses Oracle's soaring credit risk, with Morgan Stanley stating that the pressure of AI burning cash could reach new highs. It first appeared on Chain News ABMedia.