Wall Street just put a warning label on Oracle’s AI gamble

The rush to build out AI data centers has reshaped Oracle into a very different company than it was a few years ago — and rating agency S&P Global Ratings says that shift now carries real financial risk. S&P has downgraded Oracle’s long-term issuer credit rating from ‘BBB’ to ‘BBB-‘, one notch above speculative grade, while keeping its outlook stable.

Cloud infrastructure made up just 27% of Oracle’s revenue in fiscal 2026, but S&P projects that figure will climb to nearly 60% by fiscal 2028. The agency views this business as far riskier than Oracle’s traditional enterprise software and database operations, which have decades of recurring revenue and sticky customers behind them, because AI infrastructure demands enormous upfront investment in data centers while returns are only realized over the life of multi-year contracts.

Central to the downgrade is Oracle’s dependence on one customer: OpenAI, led by Sam Altman, which S&P estimates accounts for roughly half of Oracle’s $638 billion in remaining performance obligations. If OpenAI cannot meet its payment commitments, S&P warned, Oracle risks being left holding ‘massive data center leases’ with no one to fill them.

S&P also pointed to a shifting competitive landscape as a risk factor. SpaceX recently began leasing its own compute capacity to Anthropic and Alphabet, and Meta could do the same, which the agency said signals growing competition for the same AI infrastructure customers Oracle is counting on. In a broader industry downturn, S&P expects Oracle to underperform other major hyperscalers, since it relies more heavily on external customers than internal workloads and has less financial flexibility than larger rivals to weather a slump.

The agency was direct about having been caught off guard: ‘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,’ S&P said, adding that rising component costs could further squeeze the economics of the AI business.

Looking ahead, S&P said it could cut Oracle’s rating again if leverage stays above 4.5x, if the company fails to reach positive free operating cash flow by fiscal 2029, or if its view of Oracle’s AI strategy sours. An upgrade is considered unlikely within the next two years, and would require Oracle to hit its growth targets while sustaining positive free cash flow and leverage near the mid-3x range.

Wikimedia Commons/by Hakan Dahlstrom