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Investing.com -- Moody’s Ratings has affirmed Oracle Corporation (NYSE:ORCL)’s Baa2 senior unsecured rating and P-2 commercial paper rating while revising the outlook to negative from stable.
The outlook change reflects expectations of continuing elevated leverage and increasingly negative free cash flow as Oracle significantly expands its AI infrastructure business, according to Moody’s announcement on Monday.
"While scaling up to be a major provider of AI infrastructure has the potential to drive dramatic growth and solid profitability, capital expenditure requirements will likely also drive significant negative free cash flow and liability growth as the AI business builds out," said Moody’s Senior Credit Officer Matthew Jones.
The cash flow challenges are compounded by Oracle’s substantial existing debt obligations, dividend payments, and core cloud business expenditures. Oracle reported $93 billion in debt for the fiscal year ended May 2025.
Oracle has indicated it will only initiate capital expenditures and related datacenter lease commitments once it has secured orders to support the spending. The company’s recently announced service agreement worth over $30 billion in annual revenue starting in fiscal 2028 exemplifies this approach.
Despite these measures, Moody’s noted that "the speed of the change, and potential scale of investment particularly as the AI industry is still evolving, introduce an overhang to the ratings."
Oracle’s financial position shows constraints with Moody’s Adjusted debt to EBITDA exceeding 4x and trailing free cash flow at negative $5.1 billion as of May 31, 2025. The company’s annual dividend payments reached $4.7 billion in the fiscal year ended May 2025, with interest costs of $3.6 billion.
The Baa2 rating continues to reflect Oracle’s leading position across numerous enterprise software and cloud infrastructure markets, strong organic growth profile, substantial operating scale, and large global customer base.
As of May 31, 2025, Oracle had $11.2 billion in cash and marketable securities, with expectations of negative $6 billion or worse in free cash flow after dividends for fiscal 2026. The company maintains an undrawn $6 billion revolving credit facility maturing in 2027 and had approximately $2.3 billion in commercial paper outstanding.
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