S&P Global Downgrades Oracle Credit Rating to BBB- Over OpenAI Dependency Risk

S&P Global has downgraded Oracle's credit rating to BBB-, one level above junk, citing its heavy dependency on OpenAI as a "key credit risk." OpenAI constitutes half of Oracle's $638B in contractual obligations. Oracle's projected capital spending has surged to $95B by 2027 for an AI business whose revenue is years away, placing it in a riskier position than competitors like AWS and Google.

Oracle credit downgrade

• ▪Oracle's new "BBB-" credit rating is one notch above junk status.
• ▪S&P Global downgraded Oracle's credit rating from "BBB" to "BBB-".

OpenAI dependency risk

• ▪S&P Global considers OpenAI a "key credit risk" for Oracle.
• ▪A potential collapse of OpenAI would leave Oracle with massive, unfilled data center capacity.
• ▪OpenAI accounts for approximately half of Oracle's $638 billion in contractual obligations.

Oracle capital spending surge

• ▪Oracle's capital spending is projected to reach $95 billion by 2027, up from a previous estimate of $60 billion.
• ▪S&P Global projects that revenue from Oracle's AI business will not materialize for years.
• ▪According to S&P Global, Oracle's AI business is consuming far more cash than expected.

Competitor resilience comparison

• ▪S&P Global assesses Oracle's position as more difficult than that of competitors AWS, Google, and Microsoft.
• ▪Unlike Oracle, competitors like AWS, Google, and Microsoft can use internal workloads to absorb excess data center capacity.
• ▪AWS, Google, and Microsoft also have deeper financial reserves than Oracle.

OpenAI valuation concerns

• ▪Lenders for the SoftBank-arranged loan struggled to value the privately held company OpenAI.
• ▪OpenAI has delayed its Initial Public Offering to 2027.
• ▪SoftBank reportedly reduced a loan backed by OpenAI shares from $10 billion to $6 billion.

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