Oracle AI debt nears junk rating

Oracle’s AI expansion is colliding with a more skeptical credit market. S&P Global Ratings cut Oracle to BBB- on July 9, one notch above junk, citing rising business risk, weaker cash flow and the capital demands of its fast-growing AI infrastructure business. Reuters, in a report carried by The Economic Times on Aug. 5, said the downgrade has put Oracle near junk territory as investors question how much debt the company can carry while it builds out capacity for large AI customers. Oracle reported record remaining performance obligations of $638 billion with fiscal 2026 results on June 10, underscoring the scale of contracts it still has to deliver. ### Why did Oracle’s credit rating move so close to junk? S&P Global Ratings said on July 9 that Oracle’s expanding AI infrastructure business is increasing its overall credit risk. The agency lowered Oracle to BBB- from BBB and said its view reflected rising capital expenditure requirements, an uncertain path to profitability in AI infrastructure, a rapidly evolving competitive landscape and high customer concentration. (spglobal.com) The Economic Times, citing Reuters on Aug. 5, said Oracle had become a focal point for investor concern about debt-funded AI spending across the sector. That report said Oracle’s debt stood at about $129.5 billion, roughly 4.3 times EBITDA, based on reported figures. (spglobal.com) ### What are investors worried about besides the downgrade? Yahoo Finance said in July that Oracle’s stock had been pressured not only by AI infrastructure spending, but also by its exposure to OpenAI. The report said Oracle and OpenAI signed a five-year, $300 billion deal in September 2025 that starts in 2027, under which Oracle is to build AI infrastructure and supply computing power. (enterpriseai.economictimes.indiatimes.com) Ticker Report said investors were also focused on customer concentration inside Oracle’s AI backlog. In a July article, it said the market was worried that Oracle’s “enormous AI backlog” was concentrated among a few large customers and that the company would need heavy data-center spending before those contracts turned into cash flow. (finance.yahoo.com) ### If demand is strong, why is the stock still under pressure? Oracle said on June 10 that remaining performance obligations rose by $85 billion in the fourth quarter to $638 billion. The company also reported fiscal 2026 cloud infrastructure revenue of $18.1 billion, up 77%, and fourth-quarter infrastructure revenue of $5.8 billion, up 93%. Yahoo Finance said that strong demand has not been enough to calm investors because some of Oracle’s largest AI customers may not ultimately fulfill their obligations. (tickerreport.com) In a separate July article, Yahoo said Oracle shares had fallen more than 50% from the prior year’s high as Wall Street weighed debt, customer risk and the spending needed to build out data centers. (investor.oracle.com) ### What does the OpenAI relationship have to do with this story? OpenAI is central because Oracle’s largest future infrastructure commitments are tied to a small number of AI customers. Yahoo Finance described Oracle’s exposure to OpenAI as one of the main reasons the stock lagged peers such as Alphabet, while also noting that Microsoft faced similar scrutiny because of its own OpenAI ties. (finance.yahoo.com) S&P’s July downgrade did not name OpenAI in the excerpt surfaced publicly, but it did cite high customer concentration as a reason for the lower rating. That aligns with the investor concern described by Yahoo Finance and Ticker Report. ### What will investors watch next? June 10 remains Oracle’s most recent formal disclosure point for backlog and cloud growth, and the next major checkpoint will be whether that contracted demand converts into revenue and cash flow without another step-up in leverage. (finance.yahoo.com) S&P’s current rating is BBB-, and Oracle’s ability to fund data-center expansion while serving large AI customers will remain under scrutiny from ratings agencies, shareholders and debt investors. (spglobal.com)