S&P Downgrades Oracle Rating, Citing OpenAI as Key Credit Risk
Claire Weston
S&P cut Oracle's credit rating to "BBB-" on July 12 — the lowest investment-grade notch — citing runaway AI infrastructure spending and extreme dependence on a single customer: OpenAI. One more downgrade means junk.
How close is Oracle to junk status?
S&P moved Oracle from BBB to BBB-, the last rung of investment grade. This means → one more notch down and Oracle's bonds fall into high-yield territory — commonly called "junk."
In plain terms = Oracle is standing on the edge of a cliff. Its credit quality barely passes, with zero cushion left.
Many institutional investors can only hold investment-grade bonds. A further downgrade would force them to sell, pushing Oracle's bond prices lower and its borrowing costs higher.
Why did S&P call OpenAI a "key credit risk"?
Oracle's total contractual obligations stand at $638 billion. OpenAI alone accounts for roughly half. This means → Oracle's revenue outlook is deeply tied to a private company that has not yet gone public and whose valuation is contested.
In plain terms = Oracle built a massive fleet of data centers, mostly for OpenAI. If OpenAI stumbles, those facilities become idle liabilities.
S&P explicitly warned: if OpenAI hits an operational crisis, Oracle faces stranded capacity it cannot absorb, dealing a severe blow to its balance sheet.
The money is spent — when does revenue follow?
S&P now projects Oracle's capital expenditure will reach $95 billion by 2027, more than 50% above the prior $60 billion estimate.
The corresponding revenue will not materialize for several years. This means → Oracle will remain in a prolonged cash-burn phase, with free cash flow under visible pressure.
This reflects a core tension in AI infrastructure investment: the spending is certain; the returns are not — and the market's tolerance for that uncertainty is shrinking.
How does Oracle compare with AWS, Google, and Microsoft?
Amazon AWS, Google, and Microsoft all run massive internal workloads. When external demand dips, they can absorb spare capacity themselves. Oracle lacks that buffer entirely.
In plain terms = the hyperscalers are their own biggest customers — idle machines still have a job. Oracle depends almost entirely on outside orders; when a client walks, the servers sit dark.
S&P acknowledged that if OpenAI collapsed, even the hyperscalers' balance sheets would take a serious hit — but they can absorb it. Oracle may not.
Can OpenAI's own valuation hold up?
SoftBank's loan backed by OpenAI equity was cut from $10 billion to $6 billion because lenders struggled to price a private company with no market benchmark.
OpenAI's IPO has been pushed back to 2027. This means → the market will have no public price to test OpenAI's valuation for a long time to come.
This reflects a broader structural issue: the AI investment boom is converting concept-level excitement into real credit risk in the bond market — and whether that risk fades depends on whether OpenAI's business model can actually deliver.
Content is for reference only, not financial advice.