S&P Downgrades Oracle’s Bond Rating, Names OpenAI as a “Credit Risk”

S&P Global has downgraded Oracle’s credit rating by one notch, citing significant overspending on AI business capital expenditures and substantial risk due to Oracle’s heavy reliance on OpenAI.

On July 12, S&P Global downgraded Oracle’s credit rating from "BBB" to "BBB-," just one notch above junk status. In the rating report, S&P explicitly identified OpenAI as a "key credit risk" to Oracle, pointing out that cash outflows from Oracle’s AI business have greatly exceeded expectations—predicted capital expenditures have surged from the previous estimate of $60 billion to $95 billion by 2027, while the corresponding revenues may not materialize for several years. This rating downgrade directly reflects rising market concerns about Oracle’s financial resilience.

Of Oracle’s $638 billion in contractual obligations, OpenAI accounts for about half. S&P warns that if OpenAI experiences an operational crisis, Oracle will be left with significant excess data center capacity, dramatically increasing financial pressure.

At the same time, doubts about OpenAI’s own valuation are growing—according to reports, SoftBank’s loan secured by OpenAI equity has been reduced from $10 billion to $6 billion, because lenders struggle to reasonably value the private company. Meanwhile, media reports at the end of last month indicated OpenAI’s IPO plans have been postponed to 2027.

Capital Expenditures Out of Control, AI Business Cash Burn Exceeds Expectations

The core reason for S&P’s downgrade this time is the rapid expansion of Oracle’s AI infrastructure investments. According to S&P’s latest forecast, Oracle’s capital expenditures will reach $95 billion before 2027, more than 50% above the previous estimate of $60 billion.

The issue is that the return cycle for this massive investment is lengthy. S&P points out that related revenues will not materialize for several years, meaning Oracle will remain in a state of high cash outflows for a significant period, with clear pressure on free cash flow. For bond investors, this directly weakens Oracle’s debt repayment cushion.

"BBB-" is the lowest tier of investment-grade ratings; one more downgrade would drop Oracle into high-yield (junk) bond territory.

Analysts note that this rating level has a material impact on both Oracle’s financing costs and its bond investor structure—some institutional investors only allowed to hold investment-grade bonds would be forced to reduce their Oracle holdings if the rating is further downgraded.

This rating action is a noteworthy risk signal amidst the AI infrastructure investment boom: large-scale capital expenditures combined with a highly concentrated client base are transforming the enthusiasm for the AI concept into measurable credit risk in the bond market.

At the same time, S&P designates OpenAI as a "key credit risk" for Oracle, with specific data to back it up. Among Oracle’s massive $638 billion in contractual obligations, a single client—OpenAI—accounts for about half, a level of client concentration rarely seen among large cloud service providers.

S&P’s logic is clear: If OpenAI encounters financial trouble or even bankruptcy, Oracle will be forced to bear a large amount of idle data center capacity with no corresponding revenue to cover operating and depreciation costs. In this scenario, Oracle’s balance sheet would take a significant hit.

S&P also notes that, by comparison, Amazon AWS, Google, and Microsoft all have substantial internal workloads that can absorb extra capacity if external demand falls, and all three also possess much stronger financial reserves. Even so, S&P admits that if OpenAI truly collapsed, these tech giants’ balance sheets would also be severely impacted.

Concerns about OpenAI are not coming only from S&P. According to reports, SoftBank’s loan secured by OpenAI equity has been forced down from $10 billion to $6 billion because lenders struggle to fairly price this private company. This detail reveals significant uncertainty about OpenAI’s actual valuation among institutional investors, despite the AI frenzy.

Meanwhile, as written previously by Wallstreet News, OpenAI’s IPO plans have been delayed until 2027, meaning the market will not be able to verify its valuation through public market pricing for a significant time. For Oracle creditors, this uncertainty will persist, continuing to exert credit pressure.