Oracle is one notch above junk after S&P downgrade as AI data-centre spending burns through cash
TL;DR
S&P cut Oracle to one notch above junk as its AI data-centre bet burns cash and bond investors price in the risk.
S&P downgraded Oracle to BBB- on July 9, placing the company one notch above junk status, as a $250 billion data-centre expansion plan burns through cash faster than revenue can replace it. Oracle is now the second-largest non-financial debt issuer in the Bloomberg US Corporate Bond Index after Amazon, with $117 billion outstanding. Shares fell nearly six percent on Thursday as bond investors began pricing Oracle’s debt closer to speculative grade.
Oracle’s free cash flow turned deeply negative in its fiscal year ended May 31, with the company burning through nearly $24 billion after capital expenditure. S&P estimates that deficit could widen to $42 billion as Oracle continues building data centres at an unprecedented pace. Moody’s has also placed a negative outlook on the company, signaling that...
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