Oracle Sued by Bondholders Over ‘Concealed’ Debt for AI Expansion

TradingKey - This Wednesday (14th), Oracle (ORCL) was sued by its bondholders for allegedly concealing the fact that it would need to issue significant additional debt to build AI facilities, resulting in losses for investors.

The plaintiffs are investors in the $18 billion senior notes and bonds issued by Oracle on September 25. Two weeks prior to the issuance, Oracle had just announced a $300 billion computing power deal with OpenAI.

The plaintiffs stated that only seven weeks after they purchased the bonds, Oracle sought further loans amounting to $38 billion, intended for the construction of two data centers in Texas and Wisconsin as part of the OpenAI agreement. The sudden additional borrowing caught investors off guard.

CDS Spikes to 2009 Highs as Creditors Sour on Oracle’s Credit Risk

Oracle bondholders stated that they suffered losses as bond prices fell due to the market's perception of increased credit risk for the company.

In December 2025, Oracle's five-year credit default swap (CDS), a metric measuring the cost of insuring against a debt default over the next five years, hit 155.27 basis points, reaching its highest level since the 2009 global financial crisis, reflecting market panic. Currently, Oracle's credit rating stands at BBB, but its spread levels are now on par with, or even higher than, those of junk bonds.

Bondholder representatives led by the Ohio Carpenters' Pension Plan stated that the statements in Oracle's offering documents for the initial $18 billion bond issuance were false and misleading. The company had already developed specific plans for additional financing at that time, rather than the "potential" need for extra funding claimed in the documents.

Bondholders are seeking strict liability and damages from Oracle, Chairman Larry Ellison, former CEO Safra Catz, Chief Accounting Officer Maria Smith, and 16 underwriting banks under the Federal Securities Laws.

$108 Billion Debt Pile Strained by Partner Exit and Build-Out Delays

The $18 billion bond issuance is just the tip of the iceberg of Oracle's liabilities. As of late November 2025, Oracle's outstanding bonds and other borrowings totaled approximately $108 billion, making it the company with the largest debt load among major tech firms .

Oracle's massive debt has long been under scrutiny. As early as 2025, when it signed the massive $300 billion deal with OpenAI, some questioned Oracle's aggressive strategy: with annual revenues of $60 billion and cash flow of $200 billion, could Oracle truly fulfill such a colossal order? The core of market skepticism lies in whether Oracle's massive borrowing to build AI infrastructure will ultimately prove futile.

Famed "Big Short" investor Michael Burry disclosed holding put options on Oracle stock, and has been shorting it for the past six months, reflecting skepticism over its aggressive expansion strategy. Burry claimed he neither likes nor understands Oracle's market positioning and investment strategy, suggesting such aggressive expansion might merely be driven by vanity.

Currently, Oracle's debt-fueled expansion strategy has not been smooth sailing. In December 2025, Blue Owl Capital, Oracle's largest data center partner, announced it would no longer support a planned $10 billion data center project. Although Oracle later responded that negotiations were proceeding as planned, the news still triggered a drop in Oracle's share price that day and dragged down the broader tech sector. Analysts believe this indicates that there is a risk of disruption in the funding chain supporting AI infrastructure.

Furthermore, Oracle faces issues with construction delays. In December 2025, after reporting Q2 FY2026 earnings that missed revenue expectations, Oracle announced delays in the completion dates for some data centers. Hit by this double blow, Oracle's stock plummeted by a cumulative 17% over three trading sessions.

Market Cap Halves as Oracle Races to Convert $523 Billion AI Backlog

In September 2025, Oracle's stock price hit an all-time high of $345, with its market capitalization approaching $940 billion. Now, its market cap has fallen to approximately $550 billion, nearly a 50% decline.

Analysts believe that the key to a recovery in Oracle's stock price lies in the fulfillment of its Remaining Performance Obligations (RPO). The Remaining Performance Obligations reported in the Q2 FY2026 earnings reached a staggering $523 billion, highlighting the vast scale of its cloud business. Some of these large backlogs come from major clients like Meta and NVIDIA, providing clear expectations for future revenue.

Massive market demand has always been the reason for bullish sentiment on Oracle, but the issue now lies in contract fulfillment. Public data shows that of this $523 billion in RPO, only about 10% can be converted into recognized revenue within one year, with the remainder being long-term orders for 2027 and beyond. Fulfilling these orders requires Oracle to undertake multi-year capital-intensive investments, which will leave it deeply entrenched in a situation where cash outflows exceed inflows.

Currently, the market is intensely focused on the conversion rate of Oracle's RPO. Only if its financial reports signal that infrastructure spending can be converted into revenue more quickly—leading to increased revenue and improved cash flow—will expectations of Oracle returning to a healthy growth path drive the stock price back up.