If you want to know how risky a company’s strategy is, don’t ask the CEO — ask the bond market. Right now, the credit markets are flashing a warning light on Oracle Corp. (ORCL) that we haven’t seen shine this brightly since the 2008 financial crisis.

While the equity markets have been cheering on every mention of “Artificial Intelligence,” the credit analysts at Morgan Stanley are pointing at the massive bill coming due. Oracle is currently engaged in a historic spending binge to build out the infrastructure for its AI ambitions, and the cost of insuring its debt is skyrocketing.

The metric to watch here is the Credit Default Swap (CDS). Think of a CDS as an insurance policy against a company going bust. If you lend money to a friend who is terrible with cash, you might pay a third party a premium to pay you back if your friend defaults. The riskier the friend, the higher the premium.

Currently, the cost to insure Oracle’s debt for the next five years has hit a three-year high, rising to 1.25 percentage points annually.

Morgan Stanley analysts believe this is just the beginning. They project that if Oracle doesn’t clarify its financing plans soon, that premium could breach 1.5% and approach 2%. For context, the all-time record for Oracle CDS was 1.98% back in 2008. We are flirting with financial crisis-level anxiety here, driven entirely by the race for data centers.

The Multi-Billion Dollar Tab

Why the panic? Because Oracle is borrowing money like there is no tomorrow to fund construction projects today.

• September: Oracle borrowed $18 billion in the US high-grade bond market.
• November: A consortium of banks arranged an $18 billion project finance loan for a data center campus in New Mexico.
• The Vantage Deal: Banks are fronting a $38 billion loan package for data centers in Texas and Wisconsin, developed by Vantage Data Centers, with Oracle as the tenant.

That is a staggering amount of leverage. The banks offering these loans are essentially conducting a massive hedging exercise. As they lend billions for construction, they turn around and buy CDS protection to limit their own exposure. This flood of hedging from the lenders is driving up the price of Oracle’s risk.

The situation has become so pronounced that Morgan Stanley has altered its trading advice. Previously, they suggested a “basis trade” — a sophisticated arbitrage strategy involving buying both the bonds and the CDS. Now, they are telling investors to keep it simple: just buy the CDS protection.

The logic is that the “spread” (the cost of risk) is going to widen significantly. Buying the insurance outright is now seen as the “cleaner” way to profit from Oracle’s swelling balance sheet.

Beyond the sheer volume of debt, there is a nastier, more existential risk lurking: obsolescence.

The tech world moves fast. Oracle is betting the farm on specific data center architectures (like the Stargate project). If the technology shifts—if chips change, or cooling needs evolve, or AI models become more efficient—Oracle could be left with tens of billions of dollars in “stranded assets.” They would be paying off a 30-year mortgage on a house that no longer meets code.

The Bottom Line

The banks are nervous. The bondholders are hedging. And Morgan Stanley is warning of a “funding gap.” Unless Oracle’s management uses the next earnings call to provide a crystalline roadmap of how they plan to pay for all this without breaking the bank, the anxiety in the credit markets is going to bleed over into the stock price.

Wall Street loves a spender — but only if they are sure the check will clear.