Why Oracle Shares Plunged: AI Bubble Fears and Rising Debt Explained

Oracle’s stock suffered a major blow on Thursday, tumbling 13% and triggering a broader selloff across the tech sector. The sharp drop came after the company issued disappointing forecasts and revealed soaring AI-related spending — intensifying fears that the rapid push into artificial intelligence may be creating a new tech bubble.

AI Spending Surges, But Returns Remain Uncertain

Oracle has positioned itself as a major player in AI infrastructure, thanks largely to its $300 billion partnership with OpenAI. The deal has propelled Oracle into the center of the AI race, but it has also tied the company’s financial outlook closely to the success — or struggles — of ChatGPT’s parent company.

So far, the payoff hasn’t matched expectations. Many corporate leaders still believe AI will transform business productivity, but tangible results remain limited. Oracle’s muted revenue outlook reinforced doubts about how quickly AI investments will translate into real growth.

Investors Rush to Credit Default Swaps as Debt Worries Grow

Oracle’s aggressive AI expansion has been financed heavily through debt. The company now carries roughly $100 billion in total debt — a level that has rattled bond investors.

Concerns were reflected in the credit markets:

• Oracle’s credit default swaps (CDS), a form of insurance against default, jumped nearly 12 basis points on Thursday.

• CDS prices are now at five-year highs, showing that lenders are demanding more protection.

• Oracle bonds have also been sold off as investors question whether the AI spending boom is sustainable.

This shift mirrors a broader trend: Big Tech companies, once known for strong cash flows, are increasingly tapping debt markets to fund massive AI projects. Meta alone has issued over $30 billion in bonds, while Amazon has raised around $15 billion.

Market Cap Takes a Massive Hit

Oracle has burned about $10 billion in cash in just the first half of its fiscal year due to AI-related investments. If Thursday’s losses continue, the company could see its market value fall by more than $90 billion.

The stock plunge also delivers a heavy personal impact on Oracle founder Larry Ellison:

• Ellison owns about 40% of Oracle

• His net worth, estimated at $276 billion, could drop by more than $30 billion

This comes as Ellison is also financially tied to Paramount Skydance’s $108 billion pursuit of Warner Bros Discovery, adding more pressure to his investment landscape.

Tech Stocks Slide as AI Bubble Fears Spread

Oracle’s weak forecast sent ripples across the technology sector. Major AI-linked companies — including Nvidia, AMD, Micron, Broadcom, and Arm — all fell between 3.1% and 4.2%, pushing the Nasdaq to a one-week low.

The recent enthusiasm for AI has now shifted toward caution. Many analysts warn that skyrocketing valuations and aggressive spending patterns resemble the dot-com bubble of the late 1990s.

OpenAI has been at the center of some of these concerns. Despite being valued at around $500 billion, the company still isn’t profitable and has not explained how it will finance over $1 trillion in projected AI spending by 2030.

Oracle’s Spending Plans Increase Even Further

Adding to investor anxiety, Oracle announced that its capital spending for fiscal 2026 will be $15 billion higher than previously estimated. Much of this investment is directly linked to OpenAI’s infrastructure needs.

The company also:

• Missed Wall Street expectations for key cloud contract metrics

• Issued a revenue growth forecast for Q3 that fell below analyst estimates

• Prompted 13 analysts to slash their price targets on the stock

Still, some analysts remain optimistic. BofA Global Research argued that the spending is necessary to meet fast-rising AI demand, describing the downturn as part of an “investment cycle” rather than a long-term trend.

Valuation Check: How Oracle Compares to Rivals

Despite the selloff, Oracle’s valuation remains higher than some peers:

• Oracle: Forward P/E of 29.56

• Microsoft: Forward P/E of 27.24

• Amazon: Forward P/E of 29.06

This suggests investors are still pricing Oracle as a major growth player — but continued earnings misses may challenge that narrative.