Wall Street investors wary of a credit bubble in the artificial intelligence (AI) sector are turning to an unexpected hedging strategy: shorting Oracle Corp. (NYSE:ORCL), according to Ali Meli, CIO of Monachil Capital Partners.
Check out ORCL’s stock price here.
The ‘Cheap Proxy’ Trade
Speaking to Yahoo Finance, Meli argued that Oracle has emerged as a “cheap proxy” for investors looking to bet against the credit risks of smaller, private AI infrastructure firms like CoreWeave Inc. (NASDAQ:CRWV).
While concerns around CoreWeave's business model mount, the cost to hedge its debt directly via Credit Default Swaps (CDS) has become prohibitively expensive. “Investors… use Oracle shorts as a proxy for AI credit risk,” Meli explained.
Because Oracle is aggressively building data centers for many of the same AI startups, its stock offers a more liquid and accessible vehicle for traders to express bearish views on the sector’s financial health without paying the high premiums associated with high-yield issuers like CoreWeave.
The OpenAI Liability
Central to this risk exposure is Oracle’s heavy reliance on OpenAI. Meli highlighted that OpenAI—Oracle's largest customer—is reportedly losing nearly $12 billion per quarter based on Microsoft Corp.'s (NASDAQ:MSFT) financial disclosures.
“It is indeed a major risk,” Meli warned, noting the lack of transparency in OpenAI‘s finances.
If the AI giant faces a liquidity crunch or fails to pay, Oracle faces a unique operational nightmare: billions of dollars in contracted data centers that may not be easily repurposed for other clients.
Widening Spreads And Capital Costs
Beyond external risks, Oracle's internal balance sheet is showing strain. Meli noted that Oracle’s capital expenditures have more than tripled from $6 billion to $20 billion over the last six months, a spree funded largely by debt.
As a result, Oracle’s credit spreads are widening, signaling that bond markets are becoming increasingly cautious about the company's rapid, credit-fueled expansion.
Oracle Drops Over The Last 6 Months
Shares of ORCL have declined by 15.74% over the last six months, but are up by 18.12% over the year. On Friday, it closed 0.41% higher at $195.71 apiece.
It maintains a weaker price trend over the short, medium, and long terms with a poor value ranking. Additional performance details, as per Benzinga's Edge Stock Rankings, are available here.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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