Oracle's aggressive push into artificial intelligence infrastructure is coming at a steep financial cost. On November 11, Barclays’Fixed Income Research downgraded Oracle’s debt rating to Underweight, citing unsustainable capital expenditures and a looming cash crunch. Analyst Andrew Keches warned that Oracle’s credit rating could slip to BBB-, just one notch above junk status.
Debt Levels Far Above Peers
Barclays highlighted Oracle’s debt-to-equity ratio of 500%, the highest among major technology firms. By comparison:
- Amazon: 50%
- Microsoft: 30%
- Meta and Google: even lower
This imbalance reflects Oracle’s reliance on external financing to fund AI data centers, whose construction costs can reach $50–60 billion per GW, triple that of traditional facilities. More than half of those costs are tied to NVIDIA GPUs and other high-performance hardware.
Cash Flow Concerns
Barclays’ sensitivity analysis suggests Oracle could run out of cash by November 2026, even if spending does not increase further. By fiscal 2027, capital expenditures may exceed consensus estimates by 50%, widening the funding gap.
Compounding the issue, Oracle has over $100 billion in off-balance-sheet lease commitments, raising further concerns about leverage. Unlike peers, Oracle currently generates negative free cash flow, leaving it more exposed to refinancing risks.
Industry-Wide Debt Issuance
Oracle’s predicament is part of a broader trend. Hyperscale vendors are issuing record amounts of debt to finance AI expansion:
- In recent months, major providers raised $140 billion in bonds, with total issuance for 2025 projected at $160 billion.
- Even AA-rated firms like Meta and Google have seen widening spreads, as investors demand higher risk premiums to absorb the supply.
JPMorgan strategists warned that trillions in AI-related capital expenditures could "drain every credit market," underscoring systemic risks.
Oracle as the Weak Link
While Meta and Google maintain liquidity buffers of $70–80 billion, and Amazon and Microsoft still generate positive net free cash flow, Oracle stands out as the weakest link. Its dependence on supplier financing agreements—particularly with OpenAI, tied to a $300 billion partnership—adds counterparty risk. Barclays expects rising demand for Oracle CDS as investors hedge exposure.
Market Implications
For bondholders, Oracle’s downgrade signals potential spread widening and weaker secondary market performance. For equity investors, the warning highlights the tension between Oracle’s growth ambitions and its financial sustainability.
As the AI race accelerates, debt issuance may become the "new normal." But Oracle’s reliance on borrowing, coupled with negative free cash flow, leaves it uniquely vulnerable to rating downgrades and market volatility.