Global Market: Oracle's AI spending spree pushes credit rating to brink of junk status

Oracle Corp's aggressive borrowing to fund its artificial intelligence expansion has raised fresh concerns over its financial health, with the cloud computing giant edging closer to a junk-grade credit rating as investors question the sustainability of debt-fuelled AI infrastructure spending, according to a Reuters report.

Unlike larger technology rivals such as Alphabet, Amazon, Microsoft and Meta Platforms, Oracle has relied heavily on debt and long-term lease commitments to finance its rapid buildout of AI data centres, reflecting its relatively limited cash reserves.

The scale of that spending became evident after Oracle's fiscal 2026 results, which showed negative free cash flow, capital expenditure consuming the bulk of its revenue, and data centre lease commitments totalling about $260 billion, with many contracts beginning next year.


The disclosures unsettled investors and intensified scrutiny from credit rating agencies that have long expressed concerns over Oracle's leveraged balance sheet.

In July, S&P Global Ratings downgraded Oracle's credit rating to BBB-, just one notch above junk status. Based on Oracle's reported financials, the company carried debt of $129.5 billion, equivalent to roughly 4.3 times EBITDA. By comparison, debt-to-EBITDA ratios for Alphabet, Amazon, Microsoft and Meta remain below one.

Analysts also note that Oracle's sizeable lease obligations, while not fully reflected as debt under accounting rules, materially increase its financial commitments.

Moody's Ratings, which maintains a negative outlook on Oracle's Baa2 rating, said earlier this year that no other major AI infrastructure provider is entering the current investment cycle with comparable leverage and negative cash flow. The agency expects leverage to rise further and potentially approach five times EBITDA in the near term.

Oracle is expected to spend up to $95 billion on capital expenditure during fiscal 2027, although the company anticipates customer reimbursements of up to $25 billion.

Analysts believe Oracle may need to raise additional debt, reduce share buybacks and potentially seek equity funding to support its expansion while preserving its investment-grade rating.

The company has previously stated during earnings calls that it remains committed to disciplined capital allocation and maintaining investment-grade status.

S&P analyst Andrew Chang expects Oracle's debt-to-EBITDA ratio to peak at around 4.4 over the next two fiscal years but said a sustained ratio above 4.5 could trigger another downgrade.

Fitch Ratings currently assigns Oracle a BBB rating and has indicated that sustained leverage above its thresholds could prompt negative rating action.

Credit analysts increasingly view Oracle as carrying "fallen angel" risk — a term used for companies that lose investment-grade status and are downgraded to junk. Morgan Stanley credit analyst Lindsay Tyler said in a recent podcast, cited by Reuters, that while such a downgrade is not imminent, it remains a medium-term risk depending on Oracle's execution and monetisation of its AI investments.

Investor sentiment has deteriorated sharply since June, with Oracle's shares falling roughly 50%. The company's bonds have also weakened, pushing yields into the 7%-8% range, compared with around 2.5%-3.5% for Alphabet and Amazon.

Oracle continues to highlight its remaining performance obligations (RPOs), which have climbed to $638 billion, as evidence that future contracted revenue will justify the massive investment programme.

However, some analysts remain sceptical. Moody's has warned that extensive leasing reduces upfront capital requirements but limits financial flexibility because leased data centres cannot be sold or pledged as collateral.

Rothschild & Co Redburn analyst Alex Haissl has maintained a sell recommendation on Oracle, arguing that markets are assuming timely completion, revenue generation and profitability from the new data centres despite significant execution risks.

S&P has also highlighted the mismatch between Oracle's long-term data centre leases, which span 15 to 19 years, and customer contracts that typically run for no more than five years, creating uncertainty if AI demand weakens over time.

Another concern is customer concentration, with nearly half of Oracle's remaining performance obligations linked to contracts with OpenAI, increasing exposure to a relatively narrow client base.

Despite the concerns, Oracle reported record annual revenue growth of 17% in fiscal 2026, and a majority of analysts tracked by LSEG continue to recommend buying the stock.

Large institutional investors including T. Rowe Price and Neuberger Berman continue to hold Oracle's bonds. Neuberger Berman said it believes Oracle remains committed to protecting its investment-grade credit profile and will manage its liabilities accordingly.

Oracle itself has acknowledged in its latest annual report that a credit downgrade could increase borrowing costs, reduce access to financing and negatively affect the value of both its debt and equity securities. It also warned that changes in its credit rating could influence financing terms for long-term commitments, including major data centre projects.

Reuters also reported that pricing in the credit default swap market reflects growing concern, with five-year CDS spreads on Oracle recently climbing to an 18-year high of 215 basis points, substantially above the roughly 80 basis points seen for its largest technology peers.