Oracle's Credit Risk Reaches Highest Level in 18 Years

Against the backdrop of massive investments aimed at expanding AI infrastructure, the cost of insuring against Oracle's default has reached its highest level in nearly eighteen years. According to ixbt.com, the company's five-year credit default swap (CDS) rose to approximately 2.03 percentage points in July. The change came after S&P Global Ratings downgraded the corporation's long-term issuer rating from BBB to BBB-. Ixbt.com reports .

The downgrade leaves the rating just one notch above speculative grade. At the same time, S&P lowered Oracle's short-term rating from A-2 to A-3 while maintaining a stable outlook for the company. Experts note that a rise in the CDS does not mean an immediate default, but it indicates that investors have begun demanding greater compensation for the risk of holding the company's debt obligations.

Financial Performance and Major Contracts

The reassessment of market sentiment was driven by the rapid growth of Oracle's cloud business and the high costs of expanding it. According to the final results for fiscal year 2026, the company's revenue increased by 21% year over year to $19.2 billion. Cloud revenue rose 47% to $9.9 billion, while revenue from cloud infrastructure surged by 93%.

At the same time, Oracle reported impressive growth in the volume of structured contracts that have not yet been fully reflected in its financial statements. These contracts increased by 363% in one year to $638 billion. However, building and developing AI infrastructure requires extremely large capital investments.

Investments and Future Risks

Massive investments in expanding cloud capacity led Oracle to finish fiscal year 2026 with negative free cash flow of $23.7 billion. Over the year, the company raised $43 billion in debt financing and $5 billion in equity. It also plans to raise nearly $40 billion more through debt and equity instruments in fiscal year 2027.

Oracle's main challenge today is not a lack of demand for cloud capacity, but its ability to turn a huge contract portfolio into real revenue while continuously financing the construction of data centers. Higher borrowing costs could affect the economics of expansion, even as the company maintains growth in its cloud business.

For enterprise customers, this primarily means they must consider the long-term risks of becoming dependent on a single cloud infrastructure provider. Large contracts with cloud providers require careful evaluation not only of price and performance, but also of capacity deployment timelines, service reliability, and the ability to switch to alternative solutions.