Oracle is the canary in the coal mine for Big -2-

Most notably, in the largest-ever private-credit transaction on Wall Street, Meta entered into a $27 billion joint venture with Blue Owl Capital (OWL) in October to finance the construction of its Hyperion data center in Louisiana. The deal created a special-purpose vehicle called Beignet Investor LLC, which holds the debt and does not appear on Meta's balance sheet. Upon completion of the data center, Meta will enter into short-term leases with the Beignet entity.

There's been much speculation over whether Oracle will follow Meta's footsteps to derisk its financial profile. However, D.A. Davidson's Luria believes private-credit financing might have the opposite effect - creating more opacity that would set off red flags for investors.

"Oracle could pursue off-balance-sheet arrangements with special-purpose vehicles going forward, but that would be even more concerning, since in many ways they are now acting as OpenAI's off-balance-sheet arrangement," Luria told MarketWatch over emailed comments.

Instead of taking on debt to build its own data centers, OpenAI has opted to rent the infrastructure and outsource the financing responsibility to Oracle.

Oracle will have an opportunity to address funding concerns on Wednesday, when it reports earnings for the second quarter of its 2026 fiscal year.

Read on: Oracle stock sentiment 'has quickly deteriorated.' Can earnings brighten the mood?

"The main thing that Oracle could do to quell fears would be to start demonstrating positive free cash flow and return on the investments that they're making," Apex's Treacy said. Although that outcome seems highly improbable in the near term, announcements of new contracts and updates on customer diversification and revenue timing could help improve the current narrative. More clarity on the company's future fundraising plans would also ease investor concerns, Morgan Stanley's Tyler added.

Right now, it's unclear how binding OpenAI's $300 billion contract is with Oracle, or the extent to which Oracle can pull back AI spending if demand doesn't show up. "To the extent there's flexibility on either side, [Oracle] can manage a changing outlook for OpenAI," Columbia Threadneedle's Liddle said.

Beyond contract details, the ultimate question for credit markets is whether Oracle can maintain its investment-grade credit rating. If the company "were to give even minimal commitments to the balance sheet, that could have an outsized impact on the sentiment, and therefore likely the price of the bonds," Liddle added.

As Oracle emerges as the poster child for the AI bubble, the financial landscape beneath it is bending to accommodate a future of perpetually higher leverage. Credit-rating agencies and other financial institutions are ushering in new, more lax borrowing frameworks as AI becomes too expensive to play by the old rules.

Meta's Beignet offering doesn't appear as debt on its balance sheet, but the terms of the agreement are structured incredibly similar to a debt instrument. While Meta's leases only span four years, it's effectively locked in for 16 years via a "residual value guarantee" clause that forces the company to make a cash payment to investors if it chooses not to renew the lease early.

Meta did not respond to a MarketWatch request for comment.

"There's reason to think that that should be fully accounted for on Meta's balance sheet, but the agencies are not making that adjustment today," Liddle said.

Rating agencies are also giving Oracle more leeway to maintain its investment-grade credit rating. In September, S&P Global loosened the downgrade trigger for Oracle's credit rating to a ratio of 4 times debt-to-Ebitda, from a ratio of 3.5 times debt-to-Ebitda previously, citing how the company's AI business transition would require significant upfront investment.

The financial goalposts are shifting as companies prepare to take on increasing amounts of debt. "We're in the early stages of the AI debt cycle," Treacy said. "What we're seeing today in terms of leverage coming into AI is only going to grow."

Read: Are Oracle bears too pessimistic? This analyst thinks the stock can rise 90%.

-Christine Ji

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12-09-25 0919ET