Rating agency S&P Global has lowered Oracle's creditworthiness from BBB to BBB- – this is the lowest notch in the so-called investment-grade area. A further downgrade would push the database company into speculative territory. However, the outlook remains stable according to S&P.
The rating agency attributes the downgrade, published on July 9, to Oracle's rapidly growing AI infrastructure business, which is massively increasing the company's debt and capital requirements. S&P had already set the outlook for Oracle to “negative” in July 2025, warning of precisely this scenario.
According to S&P, the core of the problem is Oracle's enormous investments in expanding AI data centers. S&P forecasts a deficit in free operating cash flow of almost 42 billion US dollars for the 2027 fiscal year. The rating agency expects Oracle to finance this deficit with a mix of debt and equity.
For the 2027 fiscal year, which ends in May next year, Oracle had raised its spending forecast to 90 to 95 billion US dollars – S&P had previously only assumed 60 billion. The analysts suspect rising component costs, such as for GPUs and network equipment, as the reason.
S&P views Oracle's strong dependence on a single major customer, OpenAI, as particularly critical. According to analyst estimates, about half of the contractually promised but not yet delivered service volume of 638 billion US dollars is attributable to OpenAI. S&P therefore explicitly describes OpenAI as a “central credit risk”.
Because if OpenAI were unable to meet its payment obligations, Oracle would be left with long-term data center rental agreements. These could neither be easily terminated nor transferred to other customers on comparable terms. And OpenAI's ability to service its contracts, according to S&P, depends on the AI boom continuing, the models remaining market-leading, and the company continuing to raise external capital -- which is not considered certain.
Oracle is currently undergoing a transformation towards a larger cloud infrastructure business. This accounted for about 27 percent of total revenue in fiscal year 2026. S&P expects this share to rise to nearly 60 percent by 2028. However, compared to other hyperscalers like Microsoft, Google, or Amazon, S&P sees Oracle in a weaker position: the company is more dependent on external customers and has less financial flexibility to weather an industry downturn. Furthermore, new competition is emerging – for example, from SpaceX, which rents computing capacity to Anthropic and Alphabet.
In parallel with the AI expansion, Oracle has cut over 21,000 jobs in the past twelve months – about 13 percent of the workforce. With this shift “from people to machines,” the company aims to finance AI infrastructure.
Oracle's situation fits a trend that international financial regulators are also warning about. The Bank for International Settlements (BIS) sees parallels between debt-financed AI investments, the dot-com bubble, and the financial crisis, and sees a “danger like in 2008”. The BIS warns of a system crash due to Nvidia & OpenAI debt.
(rie)