Standard and Poor’s Global Ratings has decided to keep Oracle within the coveted investment grade category, despite a set of internal projections that seem to tell a completely different story. While the agency lowered Oracle’s rating to BBB minus, which is the lowest rung of investment grade before slipping into speculative territory, critics argue that even this designation ignores the stark reality of the company’s balance sheet. According to S&P’s own figures, Oracle is staring down a massive expansion in debt and expenses as it gambles heavily on an artificial intelligence pivot that has yet to show a reliable return on investment.
The math behind this decision raises significant red flags for those watching the credit markets. Between 2022 and 2028, revenue is expected to surge by nearly 240 percent, but that growth comes at a steep price. Debt is projected to climb by over 400 percent, while free cash flow is expected to plummet by 32 percent and remain negative from 2025 through 2027. Essentially, S&P is admitting that Oracle’s current metrics do not meet investment grade standards, yet they are granting the software giant a grace period in hopes that AI contracts will eventually start paying off in several years.
This leap of faith appears increasingly precarious given S&P’s own admissions about the nature of Oracle’s new direction. During recent calls, analysts described the venture as a capital intensive business with no real moat, meaning it lacks a sustainable competitive advantage against rivals. To make matters worse, S&P has found itself constantly playing catch up with Oracle’s spending habits, recently hiking its 2027 capital expenditure guidance by nearly 60 percent to reach a staggering 95 billion dollars.
Market indicators suggest that lenders are far less optimistic than the rating agency. Credit default swaps for Oracle have hit levels not seen since the global financial crisis of 2008, signaling that investors view the risk of default as significantly higher than what an investment grade label implies. By basing its stable outlook on the hope that everything goes perfectly by 2028—the only year in the forecast where positive cash flow is actually predicted—S&P may be ignoring its own warnings about an uncertain path to profitability.
