S&P Global Downgrades Oracle's Credit Rating to BBB-, the Lowest Investment-Grade Tier

S&P Global downgraded Oracle's credit rating from BBB to BBB-. This is the lowest tier within investment grade, and any further downgrade could classify it as speculative grade.

The main reasons for the downgrade are as follows:

• Surge in AI infrastructure investment: Massive capital requirements for AI data center expansion have caused debt to increase sharply. Oracle is expected to post a free cash flow deficit of about $42 billion in fiscal year 2027.
• Heavy reliance on OpenAI: S&P identified OpenAI as a 'central credit risk.' About half of contracted service volume is tied to OpenAI, meaning Oracle's financial health is heavily dependent on OpenAI's ability to pay.
• Intensifying cloud market competition: Oracle is transitioning from a software company to a hyperscaler, with cloud expected to account for about 60% of revenue by 2028. However, it lacks the financial flexibility of Microsoft, Google, and Amazon, and new competitors such as SpaceX are also emerging.

Meanwhile, the Bank for International Settlements (BIS) warned that this debt-driven AI investment could pose a systemic collapse risk similar to that of the 2008 financial crisis.