Oracle launches a $25 billion bond issuance, planning to raise funds in eight parts, fully sprinting towards cloud infrastructure

In order to seize the high ground of artificial intelligence computing power, software giant Oracle has officially launched a large-scale financing plan, aiming to raise up to $50 billion through a combination of bonds and equity to support its aggressive cloud infrastructure expansion strategy.

According to Bloomberg, Oracle officially began issuing U.S. dollar bonds on Monday, with the expected issuance size between $20 billion and $25 billion. Boosted by the clearer financing path, Oracle's stock price rose over 3% in pre-market trading, temporarily alleviating market concerns about the company's sources of capital expenditure funding. At the beginning of trading, Oracle's stock reached a daily high with an increase of about 4%, but turned to decline by midday, ultimately closing down 2.75%.

According to the statement, Oracle plans to raise half of the funds needed for this year through a single bond issuance and has committed not to issue additional notes within the year; the remaining funding gap will be filled through equity-related instruments and common stock issuance. The rating agency Fitch has confirmed Oracle's long-term issuer default rating at BBB.

However, this move also places its balance sheet under scrutiny. As one of the largest corporate bond issuers outside the financial sector, Oracle currently has outstanding debt of approximately $95 billion. In the context of high interest rates, such a large-scale debt expansion has raised Wall Street's concerns about the company's cash flow pressures and financial structure vulnerabilities.

Eight Parts of Bond Issuance to Lock in Long-term Funds

According to insiders who spoke to Bloomberg, this bond issuance will be divided into eight parts, with maturities ranging from 3 years to 40 years. Among them, the preliminary price guidance for the longest 40-year bonds indicates that their yields will be about 2.25 percentage points higher than U.S. Treasury bonds.

This issuance is managed by major Wall Street firms including Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, and JP Morgan.

Oracle clearly stated in the announcement that this bond issuance is a one-time measure aimed at covering half of the annual financing plan, providing the company with immediate liquidity support while also attempting to stabilize investor expectations by locking in long-term funds.

Aggressive Expansion to Meet AI Giants' Demand

The core driving force behind Oracle's massive financing is the explosive growth demand for its cloud infrastructure business. The company is attempting to transform from a traditional database software provider into a capital-intensive cloud infrastructure giant to compete with Amazon AWS and Microsoft Azure.

According to Bloomberg, the raised funds will be specifically used to build additional data center capacity to meet the huge contract demands signed with core clients including AMD, Meta Platforms, NVIDIA, OpenAI, TikTok, and xAI.

In particular, the collaboration with OpenAI has become a significant driver of capital expenditure. To fulfill the contract, Oracle needs to procure tens of thousands of expensive GPU chips and build supporting facilities. This shift in business model has forced Oracle to transition from a "light asset" model to a capital-intensive "heavy asset" model

"Equity and Debt Financing" Combination

To balance its debt burden, Oracle has designed a diversified financing structure. In addition to the aforementioned bond issuance of $20 billion to $25 billion, the remaining funds will be addressed through equity financing.

According to media reports, the equity financing portion includes mandatory convertible preferred securities, as well as a market equity plan with a maximum scale of $20 billion. Analysis from Bloomberg Industry Research indicates that this mixed financing plan, while alleviating market concerns about the company's funding sources to some extent and clarifying the funding path for data center construction, has not fully resolved investors' worries about long-term returns.

Wall Street Concerns and Short Seller Warnings

Despite the pre-market stock price increase reflecting short-term optimism in the market regarding the financing plan, doubts remain. Notable short seller Michael Burry recently disclosed that he has shorted Oracle, criticizing it for engaging in "unnecessary heavy asset expansion." He believes that Oracle lacks the core business moat of other tech giants and has a very low tolerance for financial structure errors; if AI demand falls short of expectations, the company will face significant risks.

Additionally, according to Bloomberg citing analysis from TD Cowen, some banks have previously tightened their loan support for Oracle's data center projects due to concerns about its financing capabilities, which may be a direct reason forcing Oracle to turn to the bond and equity markets for large-scale financing.

Analysts point out that while the financing plan temporarily alleviates the risk of liquidity exhaustion, Oracle's free cash flow has turned negative, and this situation may persist for several years. The market's focus is on whether unprofitable startup clients like OpenAI can afford to pay contract bills totaling hundreds of billions of dollars in the long term, which will determine the ultimate outcome of Oracle's gamble