S&P Downgrades Oracle to 'BBB-' on Soaring AI Spending, Stock Climbs

S&P Global Ratings has downgraded Oracle Corp.'s (NYSE:ORCL) long-term issuer credit rating to 'BBB-' from 'BBB', citing concerns over the immense capital spending required for its artificial intelligence initiatives. Despite the downgrade, which places the tech giant just one level above speculative grade, the company's shares rose 2.7% on Thursday as investors weighed the risks against its substantial cloud contract backlog.

S&P Cites Soaring AI Costs

The ratings agency pointed to rising structural risk from Oracle's aggressive pivot into AI infrastructure, which is projected to strain its finances. In its rationale, S&P highlighted several revised forecasts for the company's fiscal year 2027:

• Capital Expenditures: Capex is now forecast to reach $90 billion to $95 billion, a sharp increase from a previous estimate of $60 billion, driven by data center construction and AI chip procurement.
• Cash Flow Deficit: The free operating cash flow deficit is expected to widen to a negative $42 billion, nearly double the prior projection of a $24 billion deficit.
• Increased Leverage: Adjusted debt-to-leverage ratios are anticipated to rise to the mid-4x range, a level S&P considers beyond the threshold for a 'BBB' rating.

Market Focuses on Cloud Backlog

Investors appeared to shrug off the immediate credit concerns, focusing instead on Oracle's growth narrative, which is supported by a reported $638 billion in cloud contracts. This suggests the market is currently prioritizing the potential long-term payoff from AI investments over the near-term balance sheet pressure.

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However, S&P's action underscores significant underlying risks, including a high degree of customer concentration. According to the report, AI firm OpenAI accounts for roughly half of Oracle’s remaining performance obligations, creating a notable dependency on a single, albeit major, client in the volatile AI sector.

Navigating a $167 Billion Debt Load

The downgrade puts a spotlight on Oracle's total debt, which stands at $167 billion. A 'BBB-' rating is the lowest tier of investment grade, and a further downgrade would classify the company's debt as "junk," which could significantly increase its future borrowing costs.

To manage its balance sheet and protect its rating, Oracle is pursuing equity dilution. The company issued $5 billion in mandatory convertible preferred stock in February 2026 and reportedly plans an additional $20 billion equity issuance later this calendar year, with tens of billions more expected over the next three years.