Software giant Oracle's massive wager on artificial intelligence is now attracting scrutiny from the credit market, with its aggressive spending on AI infrastructure raising red flags. In early July, S&P Global Ratings downgraded Oracle's long-term issuer credit rating from BBB to BBB-, placing it just one notch above speculative grade, while maintaining a stable outlook. Moody's has kept a negative outlook on the company.

The primary driver of this downgrade is the staggering capital expenditure Oracle has undertaken to keep pace with the AI boom, which has severely deteriorated its free cash flow. S&P projects that the free cash flow deficit for fiscal 2027 will widen to approximately $42 billion, nearly double previous estimates. Oracle's AI investments are enormous in scale.

In fiscal 2026, the company's capital expenditure reached $55.7 billion, far exceeding expectations, resulting in a negative free cash flow of $23.7 billion. To bridge this funding gap, Oracle raised $43 billion through debt issuance in that fiscal year, pushing its long-term debt to roughly $149 billion. The company plans to raise another $40 billion in fiscal 2027 and anticipates capital expenditure will hit between $90 billion and $95 billion.

Another key concern for investors is the high concentration of clients. S&P estimates that approximately half of Oracle's $638 billion in remaining performance obligations come from a single client, OpenAI. This heavy dependence is considered a critical credit risk.