Oracle credit rating cut to BBB- only one notch above junk debt analysts warn: the first crack in the AI cycle may already have broken

S&P Global downgraded Oracle’s credit rating from BBB to BBB-, just one notch above junk—because the rationale directly points to Oracle’s heavy exposure to OpenAI and its massive capital expenditures. Among analysts, Ritchie warned that Oracle may be the first company among mega-scale cloud service providers to begin weakening, or an early sign that the stock market is entering a longer bear-cycle period.
(Background: Oracle rarely disclosed that its data centers “may not be able to break even,” and Oracle’s June share price plunged 40%)
(Additional context: Oracle surged 9.6% as analysts called it a “mispricing”: cloud services revenue looked strong, but a $130 billion debt overhang looms)

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• Why did S&P act?
• The bond market has been sending warnings all along
• Oracle is a microcosm, not an exception

On the 10th, S&P Global downgraded Oracle’s credit rating from BBB to BBB-. BBB- is the final line of defense for investment-grade ratings. Put simply, as long as it is downgraded one more notch, Oracle’s bonds will be classified as junk by the market. At the same time, Oracle’s share price has already collapsed 61% since last September.

However, what S&P is looking at is not the share price—it is the balance sheet behind it: Oracle’s fiscal year 2027 capital expenditure estimate was revised upward to between $90 billion and $95 billion, and the gap in free operating cash flow will widen to negative $42 billion. In a report sent to clients recently, analyst Ritchie said plainly that Oracle is very likely the first company among mega-scale cloud service providers to start weakening.

Why did S&P act?

The reason S&P cut the rating is specific: Oracle has $638 billion in RPO (remaining performance obligations).

In simple terms, this is the total contract value that has already been signed but has not yet been recognized as revenue—about half of which comes from just one company, OpenAI. S&P warned that if OpenAI is unable to fulfill its payment obligations, what Oracle has on hand is a batch of long-term data center lease contracts that cannot be easily terminated and are also difficult to sublease to other clients.

This is not a hypothetical risk. It is a concern Oracle itself admitted in its filings. As early as the beginning of July, Movethedeng reported that Oracle, unusually, disclosed that its data centers may not be able to break even, and that same month the share price suffered a 40% drop.

Combined with the upward revision to capital expenditures, the widening cash-flow shortfall, and adjusted leverage (debt-to-EBITDA) approaching 4.5x—far above the level that a BBB-rated threshold should have—S&P has almost no choice but to downgrade. Oracle’s total debt is currently about $160 billion, and just that number alone is enough to make any credit rating agency proceed with caution.

The bond market has been warning all along

The core of Ritchie’s argument is not Oracle’s financial situation as a single company, but a mismatch in signals. In his report, he pointed out that when Oracle’s stock price had been rising steadily last year, CDS (credit default swap) spreads did not narrow in step. Put simply, bond investors had already expressed unease through prices, but stock investors chose to ignore it and kept chasing higher prices.

In the report, Ritchie warned that the key signals coming from the bond market are often initially subtle, but they are sufficient to provide advance warning of potential downside. This kind of divergence is not new—only this time, the protagonist has changed to Oracle. It is not uncommon for the bond market to lead the stock market in reflecting risk; once the share price also starts to loosen, it usually means the bond market’s warning has been brewing for a while.

Oracle is a microcosm, not an exception

Ritchie’s judgment is that Oracle is increasingly likely to symbolize the early stage of a longer-cycle bear market for the stock market. The logic is straightforward: once capital expenditures cool down, or the AI infrastructure investment mega-scale cloud companies pour into does not deliver the expected returns, default risk rises—and Oracle is precisely the one with the deepest exposure.

This is not just a problem for Oracle alone. The entire funding structure of the AI infrastructure race is built on a loop: cloud providers borrow money to build data centers, and AI companies sign long-term contracts to support revenue. As long as one link develops a crack—such as OpenAI’s ability to pay—ripples would be written directly into credit rating reports, rather than into stock chart narratives.

The stock market looks at the story; the bond market looks at cash flow. S&P’s downgrade, to a certain extent, is simply putting into an official document what the bond market already knew. Oracle’s credit rating has not yet fallen to junk, but the market’s questions are already hanging in the air first.