Oracle stock shrugs off S&P downgrade to ’BBB-’, but $160B debt shadow looms
Investing.com — Oracle Corp. (NYSE: ORCL) shares managed to gain 2.7% on Thursday, defying a credit rating downgrade from S&P Global Ratings. While shares edged slightly lower from their midday highs, the tech giant still traded firmly in positive territory.
Investors chose to focus on Oracle’s staggering $638 billion backlog of cloud contracts rather than the immediately apparent threat to its balance sheet: S&P downgraded Oracle’s long-term issuer credit rating to ’BBB-’ from ’BBB’, retaining a stable outlook.
A drop to ’BBB-’ is a significant psychological and financial blow for a tech blue-chip. It leaves Oracle just one notch above "speculative grade" (commonly known as junk status).
The downgrade reflects rising structural risk from Oracle’s massive pivot into artificial intelligence infrastructure. S&P highlighted several key financial strain points:
Exploding Capex: The ratings agency now projects Oracle’s fiscal 2027 capital expenditures to rocket to $90 billion–$95 billion—a massive leap from its previous $60 billion forecast—driven by soaring AI chip components and new data center builds.
Deepening Cash Deficit: Oracle’s fiscal 2027 free operating cash flow deficit is expected to widen to a staggering negative $42 billion, nearly double the prior projection of a $24 billion deficit.
Leverage Spike: Adjusted debt-to-leverage ratios are expected to hit the mid-4x area in fiscal 2027, crossing the line S&P considers safe for a standard ’BBB’ profile.
Compounding the anxiety is extreme customer concentration. Startup pioneer OpenAI accounts for roughly half of Oracle’s remaining performance obligations. If the AI industry’s highly volatile competitive path or path to profitability stumbles, Oracle is uniquely exposed to the fallout.
To keep its head above water and protect its remaining investment-grade rating, Oracle is aggressively leaning on equity dilution. Following a $5 billion mandatory convertible preferred stock issuance in February 2026, the company plans an additional $20 billion equity issuance later this calendar year, with expectations to raise tens of billions more over the next three years. Oracle has $167 billion in total debt.