Oracle's bonds rallied on Thursday, even as its shares tumbled, following a detailed financing strategy announcement for its extensive artificial intelligence data center build-out. The company stated it does not expect additional bond issuance for the remainder of calendar year 2026, which was a relief to debt investors and removed a supply overhang that had affected credit spreads for months. This commitment to borrowing discipline and the preservation of its investment-grade rating pushed bond prices up and lowered yields.\n\nFor fiscal year 2027, Oracle outlined plans to raise 0 billion through a mix of debt and equity. This balanced approach includes deploying a previously announced 0 billion "at-the-market" equity program and mandatory convertible preferred securities, aiming to avoid excessive leverage. This strategy found support from credit rating agencies, with Fitch maintaining Oracle's BBB investment-grade rating, although S&P and Moody's still hold negative outlooks due to negative free cash flow. Protecting its BBB rating is crucial to prevent increased borrowing costs.\n\nThe capital expenditure plans for the AI transformation are substantial. Oracle spent approximately 5.7 billion on data centers in fiscal year 2026, exceeding its own guidance of 0 billion. The company now expects to spend up to 5 billion in fiscal year 2027, though it anticipates 0 billion to 5 billion of that being repaid by customers. This surge in spending comes alongside a burgeoning backlog of future orders (remaining performance obligations) which reached 38 billion, up 5 billion from the previous quarter, largely driven by prepaid agreements for GPU servers from AI customers. While demand for its Cloud Infrastructure is strong, equity investors reacted negatively, with shares falling nearly 10%, due to concerns over potential shareholder dilution and the massive cash burn required for these investments. Analysts highlight that despite the strong demand, the funding question remains a top concern, especially with capital expenditures coming in above estimates and free cash flow remaining negative.
