Oracle is in the US high-grade market for a US$7.75bn six-part bond deal, days after the unveiling of Chinese artificial intelligence model DeepSeek rocked the technology world with questions about industry investment and development costs.

Concerns that the new Chinese AI model was more efficient than the model provided by rival OpenAI bruised Oracle and other US technology companies that are poised to benefit from increased spending on AI.

After the news broke earlier this week about the new AI competitor, Oracle, which is rated Baa2/BBB/BBB, saw its share and bond prices take a hit.

"We discussed a lot this week whether this [DeepSeek] thing is real," said a portfolio manager. "Does it significantly impact tech companies' investments and capex commitments, and the need for high-end chips?"

Nevertheless, Oracle went ahead with the jumbo bond offering today and saw a decent reception from investors at the launch.

The new SEC-registered senior unsecured transaction on Thursday comprises US$1.5bn three-year, US$1.25bn seven-year, US$1.75bn 10-year, US$1.75bn 30-year and US$1bn 40-year fixed notes. The offering from the Texas-based company also includes a US$500m three-year floater.

Active leads HSBCBank of AmericaCitigroupGoldman Sachs and JP Morgan launched the fixed tranches at US Treasuries plus 57bp, 87bp, 97bp, 122bp and 135bp, respectively, tightening 23bp-28bp from the mid-point of IPT.

Not so shining Stargate

The release of the latest AI model from DeepSeek offset optimism around Oracle's Stargate project – announced on January 21 – which has the company partnering with OpenAI, Nvidia and Softbank to invest hundreds of billions of dollars in AI infrastructure.

Oracle's shares have been riding high in past months on expectations that the US tech industry will require more AI data centers like the ones from Oracle.

Indeed, the company's stock traded as high as US$186.57 a share on January 23 after the Stargate announcement, but took a hit after the DeepSeek news and was spotted changing hands at US$169.31 today.

There was some reaction in credit markets too.

The company's 5.375% 2054 notes traded at 118bp over Treasuries as of Wednesday, widening 6bp from last Monday but not far from where they were at the start of the year, according to MarketAxess data.

"If [DeepSeek's] claims are substantiated, Oracle stands to lose out on some future revenue and profits," said Dave Novosel, senior analyst at Gimme Credit. "Therefore, we think the recent widening in spreads has some justification."

But he remained skeptical of DeepSeek's impact due to the difficulty of ascertaining the validity of some Chinese companies' claims.

Indeed, investors said they were unsure how disruptive the Chinese AI model would be to the US tech industry's plans to plow funds into AI.

"I don't know how much credibility I have in DeepSeek," said the portfolio manager. "I don't know how much you can scale it or how advanced it really is."

Today's offering is primarily earmarked for paying down around US$10bn of the company's 2025 and 2026 bond maturities.

Source: IFR