Moody's Investors Service, a prominent ratings agency, has raised a red flag concerning Oracle's newly inked $300 billion artificial intelligence (AI) contract, reaffirming its credit rating outlook as negative. Oracle and OpenAI have entered into a five-year computing power procurement pact, valued at roughly $300 billion, with Oracle's fresh revenue stream predominantly stemming from this landmark deal.

Moody's underscored that while the contract underscores the vast potential within the AI infrastructure sector, it concurrently introduces substantial financial perils. Specifically, it highlighted the counterparty risk inherent in depending on sizable commitments from a select few AI entities. It is projected that Oracle's debt expansion will surpass its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) growth, pushing the leverage ratio up to a peak of 4 times. Moreover, free cash flow might linger in negative territory for a prolonged duration.

Moody's stressed that Oracle's principal vulnerability resides in its heavy reliance on a handful of sizable AI clients. This cautionary note resonates with Moody's prior move in July when it revised its rating outlook from stable to negative. Presently, Oracle retains a Baa2 issuer rating, with rating agencies voicing apprehensions regarding the financial hazards tied to its assertive expansion approach. It's crucial to remember that the market is fraught with uncertainties, and investments ought to be approached with prudence.