As Oracle loses $498 billion in less than 10 months, why credit rating agency S&P has identified Sam Altman’s OpenAI as a ‘key credit risk’ for Larry Ellison’s company
Oracle has lost about $498 billion in market value in less than 10 months. Recently, credit rating agency S&P Global Ratings identified Sam Altman‘s OpenAI as a “key credit risk” for the company. In a report explaining its decision to downgrade Oracle’s credit rating, S&P said the software giant’s aggressive push into AI infrastructure has made it increasingly dependent on a handful of large customers, with OpenAI standing out as the biggest concern. The agency estimates OpenAI accounts for roughly half of Oracle’s $638 billion in remaining performance obligations (RPO), warning that if the ChatGPT maker is unable to meet its financial commitments, Oracle could be left with costly data centre leases and weaker cash flow.
Why S&P calls OpenAI a ‘key credit risk’
S&P said Oracle’s AI infrastructure business now carries much higher risks than its traditional software business because it requires massive upfront investments in data centres, chips and long-term leases before generating returns.According to the agency, OpenAI represents around 50% of Oracle’s $638 billion RPO, making the Microsoft-backed AI company one of Oracle’s most important customers. As mentioned anove, S&P warned that OpenAI’s ability to honour its contracts depends on continued growth in the AI industry, its ability to raise external funding and whether its AI models remain market leaders.“If OpenAI were unable to pay Oracle, we believe Oracle could be left with massive data center leases that it might be unable to exit or have to re-lease to new tenants under less-favorable terms,” S&P said.The agency added that it is monitoring OpenAI’s financial commitments to data centre operators and chip makers as an indicator of its future financial strength.
Why Oracle’s credit rating was downgraded
S&P lowered Oracle’s long-term credit rating to ‘BBB-‘ from ‘BBB’, saying it had underestimated both the scale of Oracle’s AI investments and their impact on the company’s financial profile.The agency expects Oracle’s cloud infrastructure business to grow from 27% of revenue in fiscal 2026 to nearly 60% by fiscal 2028. While that supports future growth, S&P believes it also exposes Oracle to greater financial risk because AI infrastructure requires heavy spending before profits are realised.Oracle has guided capital expenditure of $90 billion to $95 billion for fiscal 2027, far above S&P’s earlier estimate of $60 billion.The rating agency now expects Oracle’s free operating cash flow deficit to widen to nearly $42 billion in fiscal 2027, compared with its previous forecast of negative $24 billion.
Here’s what S&P said about OpenAI being a ‘key security risk’ for Oracle
OpenAI remains a key credit risk. We estimate that OpenAI makes up roughly half of the $638 billion in RPO. OpenAI’s ability to meet its contractual obligations and raise external financing will be contingent upon AI tailwinds continuing and its models being market leaders. If OpenAI were unable to pay Oracle, we believe Oracle could be left with massive data center leases that it might be unable to exit or have to re-lease to new tenants under less-favorable terms. As a proxy for OpenAI’s future prospects, we’re tracking OpenAI’s financial commitments to data center operators and chip makers to gauge its overall financial exposure and its market share among enterprise and consumers.
