A.I. Is Running on Borrowed Money

Wealth from Oracle, the giant tech company founded by Larry Ellison, is enabling Larry and his son, David, to become media moguls. Thanks to backing from Larry’s Oracle billions, David has taken control of Paramount and is now engaged in a hotly contested $111 billion bid to take over Warner Bros. Discovery, too. They are trying to build a media behemoth containing two big movie studios, multiple streaming services and the news networks CNN and CBS News, all under one enormous corporate roof.

The fight over the Oracle-financed empire has, understandably, captured plenty of headlines.

But what hasn’t received nearly as much attention is another important development, the downgrading of Oracle debt. It now stands just one notch above junk bond status. That happened on July 9, when S&P Global said that Oracle’s finances had been deteriorating. Oracle has also been hit hard in the stock market, reducing the value of Larry Ellison’s holdings since September by about $230 billion, according to my calculations based on FactSet data.

What has damaged Oracle’s debt rating and disturbed its finances is the elephant stomping throughout financial markets: colossal spending on artificial intelligence.

Data centers and the other infrastructure for A.I. involve staggering sums of money. These cascades of A.I.-driven cash have enriched diverse segments of the stock market, from semiconductor makers to engineering companies to utilities to energy producers. A.I. money is bolstering the entire U.S. economy, contributing perhaps 1.1 percent to the nation’s economic growth, JPMorgan Asset Management estimates.

But where’s that money coming from?

At this point, a major source is firms like Oracle, which has gone on an immense spending spree on A.I. data centers, increasingly selling bonds to raise the money. Oracle is not alone. Alphabet, Microsoft, Amazon and Meta are giant investors in data centers, too. (The industry jargon is “hyperscaler.) But their underlying finances are stronger than Oracle’s, and their expenditures have not landed them in the same level of trouble in the markets.

Microsoft, for example, has a Triple-A credit rating — better than the U.S. government’s. Whether Microsoft manages to retain that rating after its splurges on A.I. data centers remains to be seen. “Microsoft is starting from a much better place, financially, than Oracle is,” Mariya Entina, a portfolio manager for DoubleLine, the money management company, said in an interview. “It’s important to have enough information to be able to differentiate.”