Oracle Credit Risk Hits 18-Year High on AI Spending Concerns

Oracle's credit risk has surged to near 18-year highs as investors worry about the company's massive debt-fueled spending on AI infrastructure. Credit default swaps on Oracle's debt rose to 2.03 percentage points annually, the highest level since records began in 2008, according to ICE Data Services. The company's shares also touched a fresh 52-week low of $121.50 on Friday, July 17, 2026, trading about 63% below their peak and reducing its market capitalization to roughly $365 billion.

On July 9, 2026, S&P Global Ratings downgraded Oracle's credit rating from BBB to BBB-, one notch above junk status, citing the enormous cost of the AI infrastructure build-out. Moody's Ratings has assigned a negative outlook, indicating a possible further downgrade. The ratings agency noted that Oracle's capital expenditures reached $55.7 billion in fiscal 2026 (ending May 31, 2026), far exceeding its operating cash flow of $32 billion and resulting in free cash flow of negative $23.7 billion. S&P projects capital expenditures will rise to $90-$95 billion in fiscal 2027, with the free cash flow deficit widening to about $42 billion.

A key concern is customer concentration. S&P reported that roughly half of Oracle's $638 billion in remaining performance obligations—contracted but not yet delivered revenue—comes from a single customer, OpenAI. If OpenAI struggles to fund its commitments, Oracle could face excess capacity built for demand that does not materialize. Oracle also carries nearly $130 billion in debt and has announced plans to issue another $20 billion in equity later in 2026, following a $5 billion mandatory convertible preferred stock issuance in February.

Despite these financial pressures, Oracle's underlying business remains strong. Revenue rose 17% year over year to $67.4 billion in fiscal 2026, with fourth-quarter revenue climbing 21%. Its cloud infrastructure business grew 93% in the fiscal fourth quarter to $5.8 billion. The remaining performance obligations totaled $638 billion, up 363% year over year. However, some customers are now prepaying for GPUs or supplying chips themselves, shifting part of the build-out cost off Oracle's books. Analysts warn that if Oracle loses its investment-grade rating, it would become the largest issuer in the U.S. high-yield market, potentially increasing borrowing costs. As Andrew Wells, chief investment officer at SanJac Alpha, noted, "They're kind of on the ropes and they have to decide: Do they disappoint the bond investors or the equity investors?"