S&P Global Downgrades Oracle Over OpenAI Partnership Risk
S&P Global cut Oracle’s credit rating from A to A- on March 17, 2025, citing the company’s deepening partnership with OpenAI as a key credit risk. The rating agency warned that Oracle’s growing financial exposure to the AI firm, combined with escalating capital expenditures, weakens its credit profile despite strong revenue growth.
“We view Oracle’s increased involvement with OpenAI as a credit negative, given the high cash burn and uncertain returns from AI investments.”
— S&P Global rating report
Why OpenAI Poses a Credit Risk for Oracle
Oracle has invested billions in building and leasing AI infrastructure to OpenAI, including a $10 billion cloud computing deal announced in 2024. The arrangement requires Oracle to front massive capital costs for data centers and GPU clusters, while revenue depends on OpenAI’s continued demand and ability to generate income.
S&P Global flagged three specific concerns:
- Funding dependency: Oracle is effectively acting as a lender and infrastructure provider to a startup that still operates at a loss. If OpenAI fails to secure additional funding or monetize its models, Oracle could face stranded assets.
- Concentrated exposure: A single customer (OpenAI) now accounts for a substantial share of Oracle’s cloud growth. Any disruption to that relationship would directly hit top-line results.
- Capital spending strain: Oracle’s capex has nearly doubled year over year, driven largely by AI infrastructure. S&P expects free cash flow to remain negative for the foreseeable future.
The Broader Impact on Oracle’s Credit Profile
Oracle’s rating cut reflects a shift in S&P’s assessment of its risk appetite. Previously, the agency viewed Oracle’s conservative financial policies as a buffer. Now, the aggressive pivot to AI — and the associated financial leverage — has changed that calculus.
Key metrics that triggered the downgrade:
- Debt leverage: Net debt-to-EBITDA rose to 2.8x, above the 2.5x threshold for the previous rating.
- Negative free cash flow: S&P projects Oracle will generate negative free cash flow for at least the next two fiscal years due to AI-related capex.
- Uncertain payback period: The long-term ROI on AI infrastructure remains highly speculative, making Oracle’s credit profile less predictable.
What This Means for Oracle’s Business
Oracle has publicly positioned itself as a major AI cloud player, winning contracts with OpenAI, xAI, and other startups. But the costs are mounting. The company’s cloud infrastructure segment now consumes more than 40% of its operating cash flow.
“Oracle is betting its balance sheet on the AI boom. If that boom slows or shifts, the company will have few options to unwind those commitments.”
— Analyst quoted in the report
S&P Global also noted that Oracle’s core database and enterprise software businesses remain strong, but those profits are increasingly being reinvested into high-risk AI projects. The rating outlook is stable, meaning further downgrades are not expected unless the AI investments fail to generate returns.
The Industry Context
S&P Global’s action on Oracle is part of a broader trend. Rating agencies are increasingly scrutinizing tech companies’ AI spending. Microsoft, Google, and Amazon have also seen their credit metrics pressured by massive data center buildouts. However, Oracle’s smaller scale and higher reliance on a single client make it more vulnerable.
Oracle’s response — The company downplayed the downgrade, pointing to its revenue growth and strong demand. CFO Jeff Epstein said the rating change is “short-term noise” and that Oracle remains committed to its AI strategy.
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