Oracle’s credit ratings affirmed amid AI infrastructure expansion

Investing.com -- Oracle Corporation’s credit ratings were affirmed by major rating agencies as the company accelerates its artificial intelligence infrastructure growth strategy, though concerns remain about increasing debt levels and negative free cash flow.

S&P Global Ratings affirmed Oracle’s ’BBB’ rating with a negative outlook, citing strain on the company’s credit profile due to aggressive capital expenditure plans. Oracle recently raised its fiscal 2026 capex guidance to $35 billion from $25 billion, with S&P forecasting actual spending could reach $38 billion in fiscal 2026 and peak above $60 billion in fiscal 2028.

This spending trajectory is expected to widen Oracle’s free operating cash flow deficit significantly beyond the $10 billion forecast for fiscal 2026, potentially pushing S&P-adjusted leverage above 4x in fiscal years 2027 and 2028.

S&P loosened its downgrade trigger to 4x from 3.5x, acknowledging Oracle’s business transition requires upfront spending before revenue generation. The agency views Oracle’s AI investments more favorably than share buybacks or acquisitions.

Moody’s Ratings assigned a Baa2 rating to Oracle’s proposed senior unsecured notes offering while maintaining its negative outlook. The agency highlighted Oracle’s leading position across enterprise software and cloud infrastructure markets, but noted concerns about high leverage and continuing negative free cash flow.

Moody’s reported Oracle’s adjusted debt to EBITDA was over 4x with trailing free cash flow at negative $5.1 billion as of May 31, 2025. The agency expressed concern that Oracle’s $300 billion in recently signed AI contracts could result in an extended period of high leverage and negative cash flow.

Fitch Ratings assigned a ’BBB’ rating to Oracle’s proposed benchmark size unsecured bonds with a stable outlook, supported by expectations that EBITDA leverage will remain below 3.5x. Fitch highlighted Oracle’s strong financial flexibility with staggered debt maturities and approximately $11 billion in cash and marketable securities as of fiscal 1Q26.

All three agencies acknowledged Oracle’s competitive position in the AI infrastructure market but noted risks associated with rapid scaling and high customer concentration. S&P estimated that OpenAI could account for more than a third of total Oracle revenues by fiscal 2028, viewing Nvidia’s recent $100 billion investment in OpenAI as a credit positive for Oracle given its exposure.

The rating agencies indicated they would consider upgrades if Oracle demonstrates successful execution of its AI strategy while maintaining appropriate leverage metrics and returning to positive free cash flow.

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