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The old adage goes that during a boom, the companies that profit most are the ones selling the picks and shovels. This January, even as consensus had largely settled around the idea that an AI bubble exists, something even Sam Altman acknowledged last August, Blackstone called investing in the \u201cpicks and shovels\u201d of AI a \u201cgenerational\u201d opportunity. The safer bet, we\u2019re told, lies not in the models themselves but in AI\u2019s physical infrastructure: data centers, chips, and electricity. \u201cThe Real AI Talent War Is for Plumbers and Electricians,\u201d declared a January headline<\/a> in Wired<\/em>.<\/p>\n Of the major players in artificial intelligence, a few might reasonably be considered picks-and-shovels companies. Nvidia, led by Jensen Huang, is one. Another is Oracle, which under Larry Ellison has spent the past year building some of the country\u2019s largest AI data centers<\/a> to provide computing power for companies like OpenAI.<\/p>\n But insofar as Oracle has been selling picks and shovels, enormous ones at that, it has also, over the past few months, come to be seen as a canary in the AI-bubble coal mine. In the roughly 10 months since September 2025, when Oracle signed a $300 billion deal<\/a> with OpenAI that sent its stock soaring 36% in a single day, briefly making Ellison the world\u2019s richest man<\/a>, the company\u2019s shares have fallen more than 43%, wiping out those gains. Meanwhile, the market for Oracle\u2019s credit default swaps, which allow investors to bet on the possibility that the company could miss bond payments, has surged as its debt rating hovers just above junk status.<\/p>\n Since Oracle began building out Stargate, its sprawling data center campus in Abilene, Texas, the company has faced growing scrutiny over the highly leveraged financing behind both the project itself and its broader AI data center buildout.<\/p>\n The scale of the risk Oracle is taking is increasingly visible on its balance sheet. The company now carries more than $160 billion in outstanding liabilities\u2014including $133 billion tied to the AI buildout, according to JPMorgan research cited by Barron\u2019s<\/em>\u2014while holding less than $40 billion in cash and burning through money, according to its latest SEC filing<\/a>. <\/p>\n Much of that gamble is tied directly to OpenAI. More than $300 billion of Oracle\u2019s $553 billion in remaining performance obligations, or contracted revenue it has yet to collect, comes from OpenAI, a company that itself is reportedly losing billions<\/a>. The dynamic has effectively turned Oracle into a public market stand-in for OpenAI. Investors unable to buy shares in the private company have, at least historically, treated Oracle as a proxy bet on OpenAI\u2019s future success (and eventual IPO<\/a>).<\/p>\n It should be said that among hyperscalers, the giant companies that own and operate data centers\u2014like Meta and Amazon\u2014this balance of cash, debt, and remaining performance obligations is not the norm. Oracle\u2019s debt-to-equity ratio hovers around 415%, while none of the other hyperscalers top 80%.<\/p>\n This disparity makes a certain amount of sense: Oracle doesn\u2019t have the same reserves of non-AI cash as companies like Amazon or Meta. While it has been a major player in tech for decades, its ascent to a nearly $900 billion market capitalization<\/a> last September was driven almost entirely by hype, or rather its market equivalent: an OpenAI deal.<\/p>\n The past few months of Oracle\u2019s downward swing have been marked by a few notable episodes. The company has reported weak quarterly financial results and faced a class-action lawsuit<\/a> from bondholders alleging that it had misled them by claiming it would not need a \u201csignificant\u201d amount of additional financing for its AI infrastructure buildout. We also got news that Blue Owl Capital, a private lender, had pulled out of financing a $10 billion data center project<\/a> in Michigan. (Eventually Pimco and Blackstone stepped in.)<\/p>\n It was the Blue Owl retreat that was maybe the most worrying of all. Private lenders specialize in structuring bespoke deals that insulate them from risk; that flexibility is central to their business model. So if even they were stepping back from Oracle, despite the enormous fees attached to financing AI infrastructure, it raised a sharper question: What were they seeing that made the downside look too large to hedge against?<\/p>\n The fact that so much of today\u2019s financial activity takes place in the private markets has led some observers to speculate that the data center boom, the very \u201cpicks and shovels\u201d of AI, is, at least for the moment, propping up another industry caught in the midst of its own bubble: private credit. <\/p>\n The private credit (or lending) bubble<\/a> has received far less attention in the nonfinancial press than the AI one, though speculation about its eventual bursting has circulated for years. More recently, a selloff in software companies once considered safe bets\u2014the so-called “SaaSpocalypse,” driven by fears that AI could make enterprise software obsolete\u2014brought the issue back into focus.<\/p>\n For context, private credit refers to nonbank loans made to private companies. \u201cAlternative asset managers,\u201d as firms in the industry call themselves, specialize in this kind of lending. Think Apollo Global Management, Blackstone, or Blue Owl Capital: massive financial institutions that operate, in many ways, like banks. They\u2019re frequently referred to<\/a> as \u201cshadow banks.\u201d<\/p>\n In the years following the Great Recession of 2007-09, after which the big banks were told they had to hold more money on their books via the Dodd-Frank Act, lending shifted hands. Private nonbank financial institutions (NBFIs), as they\u2019re often called, had suddenly hit the jackpot: They weren\u2019t subject to the same capital requirements as banks, and they could structure deals with far greater flexibility<\/a>.<\/p>\n That trend has only picked up steam. Over the past five years, private lending has come fully into its own, with the amount of private credit in circulation more than tripling to roughly $3 trillion. (Unfortunately for those involved, the transformation of firms like Apollo has come with some added bureaucracy. \u201cWe are becoming a bank. It truly sucks,\u201d an Apollo executive told the Financial Times<\/em><\/a> in late 2025.) <\/p>\n The worry in the financial press has been that, absent regulation, private lenders would become too willing to forgo necessary due diligence on deals\u2014that they\u2019d take borrowers at their word rather than look closely under the hood. Recently, those fears have begun to materialize, with two recent high-profile bankruptcies sending shockwaves<\/a> through the private credit world. One involved the auto lender Tricolor; the other, the auto parts company First Brands. In both cases, lenders\u2014private and public alike\u2014failed to properly sound the alarm. Billions of dollars in investor money vanished seemingly overnight. Those worries carried on into the winter and spring: Blackrock, Blackstone, Apollo, and Blue Owl have all halted redemptions on various funds as investor anxiety has spread.<\/p>\n But even as fears surrounding private credit have further materialized\u2014stock in Blue Owl has dropped nearly 50% over the past year\u2014industry executives have argued that they are still finding highly sought-after returns, particularly in data center development. And when critics reflexively invoke \u201cthe bubble,\u201d their response is often a patronizing reassurance: that these financial products are structured specifically to avoid risk. Appearing on the Odd Lots<\/em> podcast<\/a> in January, Michael Zawadzki, global chief investment officer at Blackstone Credit & Insurance, insisted that lenders are financing \u201c15- or 20-year take-or-pay contracts\u201d in which they receive \u201ca fixed sum every single month\u201d from tenants\u2014\u201cno matter usage . . . operating costs.”<\/p>\n \u200b\u200bThe notion that private credit firms are particularly adept at structuring leases, and that they primarily target the most cash-rich companies in the world, might paint Oracle as something of an outlier. In that case, Blue Owl Capital\u2019s decision to pull out of the data center deal is not a sign of things going wrong, but of things going right\u2014of the prudence of the private markets, of the virtues of financialization. Such has been the narrative of our favorite neoliberal financiers for decades. \u201cDemocratizing capital,\u201d the junk-bond king and private-credit forebear Michael Milken wrote in 2000 for California Lawyer<\/em><\/a>, \u201chas encouraged the growth of such new financial entities . . . to challenge the dominance of the few large banks and insurance companies that used to decide who received financing.\u201d<\/p>\n Along similar lines is another story you\u2019ll hear quite often: that there will be some winners and some losers, and that the job of lenders is to pick them. Bad apples, it follows, are a natural consequence of the market economy. This is the story frequently told<\/a> about the dot-com bubble (e.g., Google won, Pets.com lost) and one expressed by many financial commentators today vis-\u00e0-vis the perceived AI bubble. Yes, Oracle might have a cash problem, but Google or Anthropic will reap enough benefits that further macroeconomic growth will be possible and progress can be maintained. Hence we shouldn\u2019t give up on AI. (The same sort of logic holds true for lenders; Lehman Brothers was a bad apple, worth making an example of, but Wells Fargo was an honest Main Street bank.)<\/p>\n And much hay is made about the AI ouroboros, the image commentators like to use to describe how ginormous companies like OpenAI, Nvidia, AMD, CoreWeave, Broadcom, Oracle, and even the other hyperscalers are paying each other to keep the hype going while not turning a substantial profit. It\u2019s reminiscent of earlier speculative loops, like the telecom or railway bubbles. It\u2019s why it\u2019s hard to tell who the good <\/em>apples are, per se, or whether there are any at all. The unprofitable OpenAI, for one, seems to undergird nearly everything: In November 2025, Sam Altman revealed on X that OpenAI has about $1.4 trillion in multiyear infrastructure commitments through 2033. (Although, CNBC reported in February<\/a> that OpenAI has told investors it’s targeting $600 billion in compute spend by 2030; whether those numbers are incongruous is to be determined.)<\/p>\n That OpenAI is looking for new ways to find profit\u2014some it once claimed it would avoid, like advertising\u2014hasn\u2019t yet seemed to scare off sophisticated investors who are more worried about missing the final growth stretch than getting mauled in a crash. <\/p>\n Over the past year, some investors have announced that they are hedging their AI bets. In November, for example, Deutsche Bank said it was exploring ways to manage its data center exposure<\/a>\u2014a relatively simple statement that nonetheless sent Main Street market-watchers into a millenarian frenzy. But what this means for private credit is more opaque: The concern is that AI exposure has delayed, and perhaps magnified, a future private-credit crash.<\/p>\n Over $450 billion has been poured into the tech sector<\/a> through private credit as of late 2025, per Bloomberg<\/em>\u2014which is a large number, yes, but likely still understates their exposure. Robert Dodd, an analyst at the investment bank Raymond James, told Bloomberg<\/a> <\/em>in February that private creditors classify their loans to software companies based on their end markets. \u201cIf your software business is in healthcare, the fund classifies it as healthcare exposure,\u201d he said. \u201cThe software exposure is meaningfully higher than it looks.\u201d <\/p>\n The sheer scale of the AI buildout<\/a> has required such staggering amounts of capital that hyperscalers, even the cash-rich ones, have turned to more unconventional fundraising methods. One of the most prominent is the special purpose vehicle, or SPV, which is, at its core, fairly simple (though modifications can be made): These financial vehicles are used to raise money for data center projects while keeping debt off companies\u2019 balance sheets.<\/p>\n First, a holding company, the SPV, is created by a hyperscaler (or by a developer working on its behalf), then banks and private creditors lend to the SPV\u2014not <\/em>the hyperscaler\u2014in order to finance the development of the data centers. The hyperscaler then leases the finished facility back. Oracle has leaned on SPVs more heavily than perhaps anyone else, for an obvious reason: the debt sits on the SPV\u2019s books rather than the hyperscaler\u2019s.<\/p>\n For lenders, these arrangements offer a way to earn attractive returns from blue-chip tenants on long-term leases. A company like Meta is a particularly appealing customer, one willing to pay higher private-market rates while also sitting on enormous cash reserves. That contradiction is reflected in the disconnect between debt ratings and yields. The debt Meta used to finance its planned flagship hyperscale data center, Hyperion, received an A+ rating from S&P Global, despite the fact that its yield looked something more like a high-yield or \u201cjunk\u201d bond. (Also of note: According to the Financial Times<\/em><\/a>, some of these SPV deals are being cut up, pooled together and resold to investors as new asset-backed securities.)<\/p>\n One of the catches for lenders concerns the collateral. If a hyperscaler defaults, lenders\u2019 claims are limited to the SPV\u2019s underlying assets, usually the data center itself, including its real estate and chips. That is why many of these deals include residual value guarantees (or RVGs), under which the hyperscaler agrees to compensate lenders if the value of the property drops significantly. Meta\u2019s RVG on Hyperion, for example, is worth roughly $28 billion<\/a>, according to the company. While the RVG shifts some risk back onto the hyperscaler, it too remains off the balance sheet as a liability, unless the probability of the property value collapsing becomes significant\u2014generally understood as greater than 50% odds, as determined by an auditor hired by the hyperscaler.<\/p>\n Even though this exposure doesn\u2019t appear on hyperscalers\u2019 balance sheets, they\u2019re still ultimately on the hook. That was much of the basis for the proposed class-action lawsuit filed in January by a group of Oracle bondholders led by the Ohio Carpenters\u2019 Pension Fund, who allege that the company misled investors about the scale of the debt it was preparing to take on. Documents tied to Oracle\u2019s $18 billion bond sale<\/a> in September 2025 said the company \u201cmay\u201d need to borrow more. Seven weeks later, Oracle returned for an additional $38 billion in loans to finance data centers tied to its OpenAI contract. The spike in Oracle\u2019s credit default swaps followed soon after.<\/p>\n The collateral itself is another problem. If AI demand has been even a bit overestimated, then the value of these assets could plummet far enough to wipe out many of the parties involved, even with RVGs in place. A February report from the ratings agency Moody\u2019s flagged that hyperscalers\u2014not OpenAI, but the public companies Amazon, Meta, Alphabet, Microsoft, and Oracle\u2014have amassed more than $662 billion in off-balance-sheet <\/em>commitments, more than all the debt on <\/em>their balance sheets. <\/p>\n And irrespective of demand collapse, the collateral is itself unusual and worth taking stock of. There\u2019s, for one, the fact that top-of-the-line chips might last only a few years considering they\u2019re being run 24\/7 for training and <\/em>that new chips are constantly being developed, making old ones obsolete. Those chips are themselves now being collateralized. CoreWeave, for example, has built a multibillion-dollar business in part by turning these relatively short-lived chips into financial products. The Information<\/em>, as part of a series of predictions for 2026<\/a>, suggested that Oracle may soon do the same. (That the financing and construction boom is racing ahead of the physical infrastructure needed to support it only makes the situation more tenuous.)<\/p>\n Forecasts are as dramatic in the world of private credit. Morgan Stanley research, published in 2025 and cited by Apollo<\/a> on its own website, predicted that private credit would contribute $800 billion in financing AI infrastructure over the next three years. Presumably, much of that has already been deployed. <\/p>\n To assume that the private credit bigwigs were performing up to snuff, and not chasing one more rush, or perhaps offloading the risk to pension funds and insurers\u2014would be na\u00efve. <\/em>In February, in an effort to find cash to return to weary investors, Blue Owl sold $1.4 billion of its debt to an insurer it owned <\/em>at near par. \u201cThey made an arm\u2019s-length economic decision,\u201d the investment firm\u2019s copresident, Craig Packer, said over an earnings call<\/a>. \u201cThere is nothing behind the scenes that would in any way undermine that conclusion.\u201d <\/p>\n The words of JPMorgan CEO Jamie Dimon, delivered after the Tricolor and First Brands crises<\/a>, have loomed large over Wall Street for the past eight months: “When you see one cockroach, there are probably more.”<\/p>\n A late-January report from TD Cowen<\/a> found that banks and bank-like entities had begun pulling back from Oracle. More and more Oracle layoffs have followed, partially in an effort to mollify investors\u2014though the cuts themselves have also been used to finance further AI investment. TD Cowen\u2019s research \u201cindicates that multiple Oracle data center leases that were under negotiations with private operations struggled to secure financing, in turn preventing Oracle from securing the data center capacity via lease.\u201d One being Blue Owl Capital, of course. <\/p>\n What\u2019s revealing here, however, is that Oracle is not merely a passive harbinger of a forthcoming bubble burst; it\u2019s itself becoming an agent in the popping. If Oracle is having trouble building data centers, both in terms of financing, but also in terms of literal construction\u2014a separate subject Bloomberg <\/em>has reported on<\/a>\u2014and it can\u2019t deliver on what OpenAI needs, it only places more stress on a company that\u2019s already stretched thin. The fact that Oracle has $66 billion in SPV commitments\u2014most of any of the hyperscalers\u2014makes matters worse for everyone involved. <\/p>\n The disconnection between the market performing well (or even merely holding steady) and the widespread sense that some sort of crisis is coming can feel disconcerting, even from a distance. Knowledge that the parabolic growth of the Magnificent Seven stocks<\/a>\u2014Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, Tesla\u2014is carrying the American economy barely changes that. Will there be a crisis and a bailout similar to 2008? OpenAI got stuck in a still-ongoing media imbroglio in November when its CFO suggested that the government could backstop their investments in order to help with financing, a statement Altman had to quickly repudiate<\/a>. But the company\u2019s chief executive has nonetheless refused to promise that the firm won\u2019t pursue such backstops. (Will Oracle, captained by Trump-connected Larry Ellison, be bailed out somehow?)<\/p>\n There\u2019s even the question of whether the AI-leveraged tech giants who\u2019ve dipped into the debt worlds recently, like Meta or Microsoft, can restrict their exposure. On January 29, Microsoft stock had the second-largest single-day dollar decline<\/a> in U.S. stock market history, trailing only Nvidia\u2019s last year. The drop-off was, in large part, a product of slower-than-expected growth as well as the announcement that Microsoft would be growing its Oracle-sized commitments to OpenAI. That same day, Oracle\u2019s stock cratered, despite Blackstone’s announcing its interest in taking a stake in the Michigan project that Blue Owl pulled out of. <\/p>\n The precarity of the current situation harkens back to decades prior, when we were looking for answers to other macroeconomic\u2014and, importantly, political\u2014crises. The inevitable end of Keynesian capitalism in the ’70s was answered by monetarism and neoliberalism, while the exact nature of their end remains to be seen. During that inflection point\u2014from President Ford, through Carter, to Reagan\u2014despair struck similarly to today. Immortalized in political theorist Melinda Cooper\u2019s Counterrevolution: Austerity and Extravagance in Public Finance<\/em><\/a>, were the words<\/a> of the famed economist Arthur Laffer, then a Ford adviser, \u201cPerhaps the solution to our doomsday problem is the exact opposite of the solution found at the end of the first millennium . . . We need the appearance of God.\u201d <\/p>\n Calls for deliverance remain today. This January, at Davos, the hedge fund magnate Ken Griffin called for divine intervention too. \u201cWithin the private sector,\u201d Griffin said, \u201cthe question is will AI create the productivity acceleration . . . to overcome the profligate spending we\u2019re currently engaged in.\u201d He finished, \u201cThe world needs a savior, and the hope is that AI is the savior we need.\u201d<\/p>\n People used to joke in Silicon Valley, when Oracle was starting up, that \u201cthe difference between God and Larry [Ellison] is that God doesn\u2019t think he\u2019s Larry.\u201d (This is also the title of his biography.) Last year, President Trump even called him \u201ca sort of CEO of everything.\u201d And Larry\u2019s dominion has only further grown; see his high-profile media ventures, like Oracle\u2019s purchase of new stock in TikTok, or his son\u2019s Warner Bros. takeover\u2014which he effectively bankrolled<\/a>. Yet even those deals carry significant risks: Both the TikTok and Warner Bros. buyouts were financed heavily<\/a> with Gulf spending, including by Gulf state sovereign wealth funds. With the impact of the Iran war on Gulf economics, concerns have arisen about the debt raised by the Ellisons for the Warner Bros. deal, which has yet to be fully closed. <\/p>\n In looking at Larry Ellison, it almost feels too obvious to compare either the man or his company to Icarus\u2014as easy a metaphor as it is to reach for, given, for one, Oracle\u2019s debt-to-equity ratio. It\u2019s better instead to think of the aptly named company through the frame of Babylon: as an exercise in hubris whose eventual collapse sent wide-ranging, disorienting, and destructive shockwaves through everything around it.<\/p>\n \nThe rise of the shadow bank<\/h2>\n
In search of cockroaches<\/h2>\n
Is AI ‘the savior we need’?<\/h2>\n