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S&P cuts Oracle to BBB- as AI spending and OpenAI risk grow
The agency said it now expects Oracle's free operating cash flow deficit to widen to about $42 billion in fiscal 2027, and estimates roughly half of its remaining performance obligations are tied to OpenAI.
S&P Global Ratings cut Oracle Corp.'s long-term credit rating to BBB-, placing it at the lowest level of investment grade, one notch above junk. The move followed the July 9 assessment, with Oracle shares later trading around $125, down nearly 30% over the past month and nearly 50% over the past year, according to MarketBeat Ratings.
S&P cited the scale of Oracle's AI spending plans, saying it previously underestimated the investment required for those ambitions. The agency now expects Oracle's free operating cash flow deficit to widen to roughly $42 billion in fiscal 2027, nearly double its earlier forecast.
A second concern was customer concentration, with S&P estimating that around half of Oracle's $638 billion in remaining performance obligations is tied to OpenAI. S&P also noted that Oracle has taken on long-term commitments for facilities and equipment to meet OpenAI demand, meaning the obligations would still need to be paid even if OpenAI payments were to slow.
MarketBeat Ratings added that the downgrade highlights how the gap is widening among major AI infrastructure spenders. S&P described Microsoft and Alphabet as standing higher in ratings, while Oracle sits alone at BBB-, and noted that all four major AI spenders have seen free cash flow compressed and have turned to the bond market to help cover the difference.