Oracle's $300B OpenAI Deal Underwater: Market Cap Drop and Credit Risk Analysis

Oracle’s $300B five-year OpenAI cloud deal (announced September 2025, starting 2027) has led to significant market backlash: the company’s market cap dropped by ~$315B (from ~$615B to ~$300B as of Nov 18, 2025) [1][2]. Concurrently, Oracle’s five-year CDS spreads spiked to two-year highs of 80–88 basis points, doubling year-over-year—signaling rising investor concerns about default risk [3][4].

Key causal links:

1. Revenue Gap
   : OpenAI’s projected 2025 revenue ($12.7B [5]) is far below the deal’s 2027 starting annual payment of $30B [6], raising doubts about OpenAI’s ability to meet obligations.
2. Debt & Capex Pressure
   : Oracle took on $56B in new borrowing in 2025 [7], with FY2026 capex projected at $35B (up 67% from FY2025) [8], pushing debt-to-EBITDA above 4x and cash flow negative.

• Market Sentiment Disconnect
  : Oracle’s decline contrasts with stable major tech indices (e.g., Nasdaq) [1], indicating deal-specific concerns rather than broad market trends.
• Credit Risk Signals
  : The doubling of CDS spreads (to 80–88 bps) [3][4] is a strong indicator of investor unease about Oracle’s ability to service debt amid capex growth.
• Long-Term vs Short-Term
  : While the deal is a long-term bet on AI compute, short-term risks (revenue gap, debt burden) are immediate and underpriced by some investors.

• High Debt Burden
  : Debt-to-EBITDA >4x and negative cash flow [7] may limit Oracle’s flexibility to fund future growth or weather downturns.
• Payment Default Risk
  : OpenAI’s revenue is insufficient to meet 2027 obligations [5][6], potentially leading to renegotiation or delays.
• Capex Overhang
  : FY2026 capex ($35B [8]) is a significant strain, requiring additional financing or cost cuts.

• AI Compute Leadership
  : If OpenAI scales revenue to meet obligations, Oracle could gain a dominant position in AI cloud infrastructure.
• Upstream Benefits
  : Data center equipment suppliers may benefit from Oracle’s capex spending [8], though this is contingent on deal execution.

• Oracle market cap drop: ~$315B (Sep–Nov 2025) [1][2].
• CDS spread: 80–88 bps (two-year high) [3][4].
• OpenAI 2025 projected revenue: $12.7B [5].
• Oracle FY2026 capex: $35B [8].
• OpenAI deal 2027 starting payment: $30B [6].

This summary provides objective context for decision-making without prescriptive recommendations.