Oracle's CDS Hits Record High, Credit Rating Downgraded: Could This Be a Warning Sign for US Stocks?

Oracle's (ORCL-US) credit risk indicator hit a record high on Friday (17th), reflecting increasing investor concerns about the company's massive artificial intelligence (AI) investments and whether these investments will generate sufficient returns in the future.

According to ICE Data Services, the credit default swap (CDS) premium—a measure of market perception of Oracle's default risk—rose by approximately 10 basis points, closing at 198.23 basis points, a record high closing level. The previous record high was 198.18 basis points on March 27.

A rising CDS premium indicates that investors are demanding higher risk compensation to provide default protection for Oracle's bonds.

Amid rising market concerns, Oracle is aggressively investing in data centers to support rapidly growing AI computing demand. This wave of infrastructure development has already strained the company's finances, pushing its operating free cash flow into negative territory.

Last week, S&P Global Ratings downgraded Oracle's credit rating to BBB-, the lowest investment-grade tier, just one notch above junk status. S&P stated that the upfront capital expenditures required for Oracle to expand its AI business are significantly higher than originally anticipated.

Moody’s Ratings has maintained a negative outlook, indicating that further downgrades remain a risk.

Regarding Oracle's downgrade, Tyler Richey, a technical analyst at Sevens Report Research, said this could be the 'canary in the coal mine' for the stock market—a preliminary warning sign of impending pain.

In a report to clients on Monday, he wrote: 'Oracle is likely to become the first of the hyperscaler giants to turn, evolving into the early stage of a long-term cyclical bear market in equities, and this possibility is increasingly growing.'

Oracle's stock price has fallen 61% since September 2025. However, Richey noted that the company's decline and downgrade were foreshadowed. The crux lies in the fact that Oracle's CDS spread failed to narrow in 2025 even as its stock price rose. In other words, as the stock price surged, the insurance cost for the company's debt default did not decline sufficiently—meaning equity investors overlooked the risks that bond investors saw.

Richey believes similar warning signals are now emerging across the broader market.

Tech stocks plunged on Friday, with the Philadelphia Semiconductor Index falling 20% from its peak, officially entering a 'bear market.' The sell-off was triggered by a Chinese startup launching a new AI model, sparking market concerns that established AI developers like OpenAI will face fiercer competition. This has further intensified doubts about whether the massive AI infrastructure investments by large U.S. tech companies can generate commensurate returns.

Oracle has become a key player in the AI infrastructure race through its cloud computing business, providing computing resources to AI model developers and enterprise clients. However, building such computing capabilities requires massive capital investment in constructing data centers, purchasing networking equipment, and acquiring advanced AI chips.

Currently, Oracle has approximately $117 billion in corporate debt included in the Bloomberg US High-Grade Corporate Bond Index, making it the largest non-financial corporate issuer in the index.