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The tech industry's obsession with GPUs has led every hyperscaler to take on masses of debt, and Oracle, a previously-stable company, has now existentially tied itself to building data centers for OpenAI, a company that burns billions a year. It's all precarious.
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Big Tech Is Having To Take On Debt To Keep Buying GPUs, And It’s Threatening Oracle’s Future Yes, it’s true that the biggest hyperscalers in the world are, incidentally, NVIDIA’s biggest customers. But here’s the thing — that doesn’t actually mean anything, especially when we consider whether this capex spending spree continues into the future, or even whether these companies can service their insane ongoing obligations. There are a few points to note: We’re reaching a point where these companies cannot meet their obligations simply by using their cashflow. In the case of Oracle and Meta, they have to borrow money. Even those companies that can pay their own way are going to turn to the debt markets, in part because financing these big, ambitious projects just makes sense. They can spread the cost over a prolonged timeframe, rather than paying for everything upfront. Oracle’s most recent AI-related debt issue, for example, had bonds that expired in 2065. A recent JP Morgan document said that the company expects the next wave of AI investment to be financed by credit, and that “if the hyperscalers decided to lever their balance sheets to 2.8x net debt to EBITDA (the median for an investment grade company), it could result in an additional $1 trillion of capital to spend.” So far, the five hyperscalers — Meta, Google, Oracle, Microsoft, and Amazon — have issued $121 billion in debt, with around 20% of that (or $27 billion) going to one campus for Meta in Richland Parish, Louisiana. We can expect another $100bn in debt to be raised next year. To be clear, this only applies to traditional long-term debt, specifically bonds. It does not include operating and finance leases, which are another matter entirely, even though they also represent long-term obligations for those companies. Naturally, investors are starting to get worried. Even before it jumped on the AI bandwagon, Oracle was already an incredibly indebted company — and it continues to raise even more d… So far, it’s the most indebted company with an investment-grade credit rating. If it lost that investment-grade rating, it wouldn’t be able to get nearly the same amount of capital, or under the same terms. To be clear, this doesn’t just apply to Oracle, but any company that raises debt on the public markets. That said, in the case of Oracle, it’s already rated BBB- by Standard and Poors, which is at the bottom-end of what we consider “investment grade.” S&P also said it has a negative outlook for Oracle, citing its dependence on OpenAI for as much as a third of its future revenue, which, in turn, is contingent upon OpenAI becoming a sustainable business (ha!) or drawing in more investment capital. These sentiments were echoed by Moody’s, another rating agency, which also puts Oracle at the bottom end of the investment-grade scale. The problem with AI capex spending versus, say, any other capex spending is that it’s a.) expensive, and b.) based on the belief that generative AI will be this big, transformational, money-minting thing. As Reuters noted, some money managers are raising the alarm that the current wave of AI-related debt raising doesn’t properly reflect the risks posed by generative AI. Put another way, it’s like a bank gave a loan to someone with a good credit rating so that they could go to Vegas and play roulette. The intent behind the debt raise matters almost as much as the company raising it. If the terms of these bonds reflected the risks posed by generative AI, the debt would almost certainly be more expensive. Right now, we’re seeing the emergence of instruments that would allow investors to bet against the companies raising money for AI capex. There are now credit default swaps — essentially, insurance products that pay out if a bond fails — for AI bonds. The way that these credit default swaps are priced is in the likelihood of failure over five years, with CDS contracts for riskier bonds costing more — just like house insurance in a… For Oracle, the price of insuring against a bond failure has reached its highest level in nearly two years, representing both demand from investors, as well as a souring of sentiment. The point I’m trying to make is this: NVIDIA’s business is dominated by a handful of companies who are increasingly (though by varying degrees) burdened by debt, and reliant upon debt. For this to continue, people need to be willing to lend these companies money. No money, no GPU sales. Allow me to put this in really stark terms, because it needs to be said. NVIDIA has restructured its business — and its status as the world’s most valuable company — around the fates of a handful of companies, who are themselves servicing two companies, namely OpenAI and (to a lesser extent) Anthropic. Those customers are racking up long-term commitments, both in terms of operating and finance leases, but also in terms of debt. They’re racking up debt at a scale that is unprecedented for these companies, and the evidence suggests that they’ll continue to raise money through debt in the near-term, with much of that going to NVIDIA in exchange for GPUs. For these companies to continue to be able to raise debt, they’re reliant on a handful of factors: The broader macroeconomic picture. Central bank interest rates, and so on. The individual credit ratings of the companies raising debt. The availability of capital in the bond market. The broader sentiment towards these companies. The broader sentiment towards generative AI as a driver of revenue (and profitability). If any of these go in the wrong direction, raising debt becomes harder and more expensive. Additionally, it’s not hard to imagine a scenario where sentiment towards these companies shifts. Oracle, for example, doesn’t really do all that much other than squeeze its legacy customers for as much as it can, for as long as it can.
November 24, 2025 at 5:04 PM