Oracle is now rated just above junk status following a downgrade by S&P, as expenditures on AI data centers consume cash rapidly.

      S&P downgraded Oracle to one notch above junk status due to the rapid cash burn from its AI data-center investments, leading bond investors to reassess the associated risks. On July 9, S&P reduced Oracle's rating to BBB-, primarily because a $250 billion data-center expansion is consuming cash faster than the company can generate revenue. With $117 billion in outstanding debt, Oracle has become the second-largest non-financial issuer in the Bloomberg US Corporate Bond Index, following Amazon. Its shares plummeted nearly six percent on Thursday as bond investors started treating Oracle’s debt as more speculative.

      During its fiscal year ending May 31, Oracle reported a significant negative free cash flow, burning through almost $24 billion after accounting for capital expenditures. S&P anticipates that this deficit could expand to $42 billion as Oracle accelerates its data-center construction. Additionally, Moody’s has issued a negative outlook on Oracle, indicating another credit agency perceives tangible risk in the company's future.

      The bond market is reacting as if further downgrades are likely. Oracle's ten-year bonds are yielding about six and a half percent, which is notably higher than the BBB index average and nearing the BB range that signifies junk status, according to Bloomberg. George Catrambone, head of fixed income at DWS Americas, mentioned that the yield gap reflects investors' demand for a premium due to uncertainties around AI revenue justifying the debt levels.

      Oracle's investments are highly concentrated, with S&P estimating that approximately half of its $638 billion in remaining performance obligations, a measure of future contracted revenue, is linked to OpenAI. In the last fiscal year, Oracle invested over $55 billion into data centers and plans to secure another $40 billion through debt and equity financing this year, which includes $20 billion from stock sales at market prices.

      Oracle is not alone in accruing debt for AI infrastructure. Hyperscalers are projected to spend up to $725 billion on AI this year, while the total AI debt among major tech companies has reached $350 billion, as per Bloomberg. However, unlike its competitors, Oracle does not have a cash-flow buffer; Google reported around $73 billion in free cash flow last year, while Oracle's cash generation has significantly diminished due to its heavy capital expenditures.

      To alleviate its financing burden, Oracle has requested that customers pre-pay for computing components, with prepaid and customer-supplied hardware for large AI contracts amounting to $75 billion. Whether this will be sufficient to avoid further downgrades depends on how quickly its cloud revenue, which grew by 93 percent last quarter, can match its borrowing levels. The company is betting that sustained AI demand will be enough to transform one of the most leveraged balance sheets in tech into a more highly leveraged one.

      Published July 16, 2026 - 7:59 pm UTC