S&P Global Ratings has lowered its long-term issuer credit rating (ICR) on Oracle to ‘BBB-’ from ‘BBB’ — one notch above speculative grade, commonly known as junk status. White the rating agency maintained a stable outlook, it identified Sam Altman-led OpenAI as a “key credit risk” for the company. S&P said that it estimates that OpenAI makes up roughly half of the $638 billion in remaining performance obligation (RPO), further adding that if the ChatGPT-maker fails to pay Oracle, it “could be left with massive data center leases”.
Oracle’s growing AI infrastructure business is diluting its strong business risk profile: S&P
In its official announcement, S&P said: “We assigned Oracle a negative outlook in July 2025 due to the pace of its AI infrastructure buildout and the potential financial impact”. “We now recognize that that we underestimated the scale of the investments required to expand the AI business and its impact on our overall view of Oracle’s creditworthiness,” adding “Despite recent contract terms requiring customer prepayments, Oracle’s strong remaining performance obligation (RPO) growth speaks to the current robust AI compute demand environment. We project Oracle’s cloud infrastructure business, which accounted for 27% of revenues in fiscal 2026, will make up almost 60% of revenues by fiscal 2028”. “We view this to be much riskier than its legacy enterprise software and database businesses, which have long-established track records of strong recurring revenues and sticky enterprise customer bases. This is because of the need for substantial upfront investment while returns are realized over the duration of multi-year contracts,” the rating agency stated.
S&P says it is closely watching the pace of AI industry buildout
“Oracle’s AI business requires significant upfront capital investments and long-term data center leases, both of which we have continually underestimated. Rising component costs could also pressure the economics of the AI business model,” the agency said.“The industry’s rapid capacity expansion is a growing risk. Near-term demand is strong, but this could reverse if leading frontier model developers are unable to raise external financing or stop subsidizing their customers. Enterprise customers could also reduce AI spending if their returns on investment underwhelm. In addition, SpaceX’s recent decision to lease its compute capacity to Anthropic and Alphabet–and the potential for Meta to do the same–portend growing competition within the industry.These risks don’t affect industry economics today but could pressure re-leasing terms when contracts come up for renewal. In an industry downturn, we expect Oracle to perform worse than other hyperscalers given its higher reliance on external customers versus internal workloads. Its competitors also generally have greater financial flexibility to outspend Oracle and weather industry downturns”.
We could lower the rating again: S&P
In its announcement, S&P said:“We could lower the rating again if we:Expect Oracle to sustain leverage exceeding 4.5x; orCome to believe that Oracle isn’t on a path to generate positive FOCF by fiscal 2029; orTake a negative view of Oracle’s AI strategy or that of the overall AI industry.Although unlikely over the next two years, we would consider an upgrade if Oracle is able to achieve its growth objectives while consistently generating positive FOCF. Under this scenario, we would also expect Oracle’s S&P Global Ratings-adjusted leverage to approach the mid-3x area on a sustained basis.”
