Oracle Corp’s bet on becoming a major AI infrastructure provider has stretched its balance sheet to levels that worry investors and ratings agencies, according to company disclosures and analyst commentary. The cloud and software giant reported negative free cash flow for the fiscal year ending May 2026, large capital spending outlays and roughly $260 billion of data centre lease commitments, some of which begin next year. Those facts have driven its share price sharply lower, pushed bond yields higher and placed the company one notch above junk with at least one ratings agency.
The disclosures in June and subsequent commentary from credit analysts and investors have focused attention on how Oracle is funding its rapid build-out of AI capacity. Because the company has limited cash reserves relative to the scale of its planned spending, it has relied heavily on borrowing and on long-term leasing arrangements for data centre capacity rather than outright ownership. That financing mix has magnified concerns about leverage, liquidity and flexibility during a period of heavy capital intensity.
By Oracle’s reported numbers, its total debt stood at $129.5 billion, which the company stated represented roughly 4.3 times EBITDA. Analysts and ratings officials note that a debt-to-EBITDA ratio above 4 is a sign of increasing financial strain. By contrast, several of Oracle’s largest software peers - Alphabet, Amazon, Microsoft and Meta - report leverage ratios well under 1. The gap between Oracle and those companies has sharpened investor scrutiny of the company’s capital plan.
Ratings agencies have already reacted. S&P Global Ratings lowered Oracle’s credit rating to BBB- in July, putting it one step above non-investment-grade. Moody’s in February assigned a negative outlook to its Baa2 rating and highlighted the company’s being both cash flow negative and more leveraged than other hyperscaler providers during this build phase. Moody’s noted that, despite Oracle’s profitable software business, leverage could increase materially and could approach 5x temporarily.
Analysts say the funding need is so large that Oracle will likely continue to issue debt, even amid rating constraints. They also expect the company to reduce share buybacks and pursue equity issuance to bolster its capital base. Oracle itself forecast capital expenditures of up to $95 billion in fiscal 2027, while noting it expects customers to repay up to $25 billion of that amount over time.
Oracle declined to provide additional comment beyond statements made in earnings calls, where company executives reiterated a commitment to disciplined capital allocation and to preserving an investment-grade credit profile. But the firm’s filings were explicit that changes to its credit rating could negatively affect the value of its debt and equity securities and increase interest costs on outstanding or future borrowings. Oracle also warned a downgrade could reduce access to short-term financing and alter the cost or terms of long-term commitments such as data centre leases.
S&P analyst Andrew Chang estimated Oracle’s debt-to-EBITDA was about 3.6 in May under his methodology, and he projects it could peak near 4.4 over the next two fiscal years owing to negative cash flows and high expenses. Chang said his base-case scenario keeps the ratio below the 4.5 threshold that would trigger another downgrade, but he cautioned S&P could downgrade the company if leverage were to sustain above 4.5 times.
Fitch and Moody’s have laid out similar numerical trigger points. Fitch, which rates Oracle at BBB, has said a sustained EBITDA leverage ratio above 3.5 - or above 4 if analysts include rents - would prompt negative ratings action. Ratings officials and market strategists now frame Oracle as a company with “fallen angel” risk, meaning it could fall from investment grade into high-yield territory if leverage widens or cash flows remain negative.
Market prices have already reflected the heightened risk. Oracle’s stock has fallen sharply since June, trading around $129 as investors recalibrate expectations for the company’s near-term cash generation. Its bonds have sold off, sending yields into the 7% to 8% range, levels more typically associated with below-investment-grade debt. By contrast, bond yields for large cloud peers such as Alphabet and Amazon trade nearer 2.5% to 3.5%.
Credit default swaps on Oracle have also risen. Five-year CDS levels recently reached an 18-year high of 215 basis points, a sign that bond markets are pricing a heavier default risk premium compared with the roughly 80 basis points seen on peers. Investor groups that hold the debt, including large funds, have expressed discomfort with the risk-reward balance even while some maintain positions in both bonds and equity.
Beyond sheer leverage, analysts point to how Oracle has structured much of its AI capacity expansion as a particular constraint on flexibility. The company has signed data centre leases stretching 15 to 19 years in many cases. Rating agencies and analysts caution that long-term leases reduce upfront capital requirements but also prevent the company from converting those assets into collateral or selling them to raise cash. That distinction matters because the data centres are not owned and therefore cannot be pledged to support further borrowing.
Another structural mismatch highlighted by analysts is the difference in contract tenor between Oracle’s long-term lease commitments and the duration of customer agreements. While data centre leases can run for decades, many customer contracts for cloud or AI services are shorter, often up to five years. S&P’s Chang called this discrepancy an “absolutely key risk,” noting that the business case depends on demand and pricing remaining consistent or improving multiple years out for Oracle to meet lease obligations.
Remaining performance obligations, or RPOs, also figure prominently in the debate over Oracle’s investment case. The company reported RPOs of $638 billion, a figure it cites as evidence of expected future revenue and as an illustration of returns anticipated from capital already deployed. However, market participants caution that a large headline RPO figure does not eliminate the execution and monetization risks involved in converting those obligations into cash flows, particularly when a substantial portion of RPOs relates to a single customer.
Customer concentration is a material concern. Almost half of Oracle’s reported RPOs come from contracts with one AI firm, OpenAI. Fixed-income managers and credit strategists warn that revenues tied to companies that may themselves lack positive free cash flow generation add an additional layer of risk to Oracle’s revenue outlook. If key customers underperform or renegotiate terms, Oracle’s ability to cover lease payments and debt service could be impaired, analysts say.
Market perspectives differ on the ultimate outcome. Some investors and fund managers that continue to hold Oracle debt or equity point to the scale and profitability of the company’s core software business and retain faith that management will seek to preserve an investment-grade rating. For example, institutional investors including T. Rowe Price and Neuberger Berman remain among holders of Oracle’s bonds. Neuberger’s senior portfolio manager David Brown told investors his firm believes Oracle is committed to an investment-grade rating and will manage liabilities accordingly.
Still, others remain skeptical about the timing and economics of the rollout. Equity analysts who follow software and cloud economics have flagged assumptions underlying Oracle’s forecasts for high-margin cloud services and the need for the company to bring data centres online on schedule and secure the revenue and profitability projections tied to them. Rothschild & Co Redburn’s head of software and cloud equity research said the market still assumes the data centres will come online on time and generate the projected profits, while his shop is more cautious about the underlying economics.
There are practical consequences tied explicitly to credit metrics. Oracle has several financings and interest terms linked directly to its credit rating. For instance, funding for large-scale deals such as the $14 billion RD Michigan data centre campus debt and the interest terms on another $10 billion revolving credit facility are tied to Oracle’s rating level. The company’s filings also acknowledge that a downgrade could increase interest amounts and change access to funding for such projects.
In December, it was reported that Blue Owl Capital had stepped away from backing a $10 billion Oracle data centre project intended to serve a major AI client, citing concerns about spending commitments and rising debt levels. Blue Owl told later inquiries that its decision was unrelated to Oracle’s debt, but the episode underscored the sensitivities surrounding third-party financing for large-scale data centre development when a sponsor’s credit profile is under pressure.
Oracle’s fiscal 2026 results did show robust growth in revenue, with the company reporting a record 17% increase for the year. That performance, along with the sizeable RPO backlog, underpins the bullish case that the company’s investments will ultimately pay off. A majority of analysts tracked on LSEG continue to rate the stock a buy, and some major funds remain bondholders.
Yet the balance between financing a rapid AI capacity build and maintaining credit discipline presents a fundamental tension for Oracle. Analysts stress that near-term leverage metrics and the company’s dependence on long-term lease commitments, concentrated customer RPOs and the timing of new revenue flows will determine whether Oracle maintains investment-grade status or becomes a so-called fallen angel into high yield. For now, the company sits close to the threshold, with ratings agencies and markets watching whether debt-to-EBITDA and cash flow dynamics improve as capital is deployed and revenue converts.
Summary - Oracle’s rapid investment in AI-focused data centre capacity has driven substantial borrowing and long-term lease commitments, resulting in negative free cash flow for fiscal 2026 and a debt profile that has prompted at least one downgrade to one notch above junk. While the company reports strong revenue growth and a large RPO backlog, agencies and investors remain concerned about leverage, lease-related inflexibility and customer concentration risks.