S&P downgrades Oracle to ‘BBB-‘: OpenAI now a ‘key credit risk’

Oracle has been downgraded by S&P Global Ratings, which lowered the company’s long-term issuer credit rating (ICR) from ‘BBB’ to ‘BBB-‘ — one notch above speculative grade. The outlook remains stable, but S&P’s statement is unambiguous about the source of the added risk: OpenAI.

‘We assigned Oracle a negative outlook in July 2025 due to the pace of its AI infrastructure buildout and the potential financial impact,’ S&P said. ‘We now recognize that we underestimated the scale of the investments required to expand the AI business and its impact on our overall view of Oracle’s creditworthiness.’

According to the agency, OpenAI represents roughly half of Oracle’s $638 billion in remaining performance obligations. Should OpenAI fail to meet its payment commitments, S&P said Oracle risks being saddled with ‘massive data center leases’ that were built specifically to serve that demand.

S&P also detailed the shift in Oracle’s business mix: cloud infrastructure accounted for 27% of revenue in fiscal 2026 and is projected to reach nearly 60% by fiscal 2028. The agency called this segment ‘much riskier’ than Oracle’s legacy enterprise software and database businesses, which have long track records of recurring revenue and sticky customers, because the AI infrastructure business demands substantial upfront investment with returns realized only over the duration of multi-year contracts.

The agency further noted rising component costs as a pressure point on the AI business model, alongside broader industry risk: near-term demand for AI compute is strong, S&P said, but could reverse if frontier model developers struggle to raise financing or stop subsidizing customers, or if enterprise customers scale back spending on underwhelming AI returns. SpaceX’s decision to lease compute capacity to Anthropic and Alphabet — with Meta a possible next entrant — was cited as evidence of growing competition within the industry.

S&P said further downgrades are possible if Oracle’s leverage stays above 4.5x, if it fails to reach positive free operating cash flow by fiscal 2029, or if the agency turns negative on Oracle’s AI strategy or the AI sector overall. A rating upgrade, though unlikely in the next two years, would require Oracle to meet its growth goals while sustaining positive free cash flow and leverage near the mid-3x mark.

Wikimedia Commons/by Hakan Dahlstrom