Barclays Bank's Fixed Income Research Division has issued a report that downgrades Oracle's debt rating to 'Underweight' and raises concerns about its debt-related risks. The report highlights that Oracle's capital expenditures, driven by the fulfillment of AI contracts, significantly surpass its free cash flow, compelling the company to depend on external financing sources. It is projected that, beginning in fiscal year 2027, Oracle will encounter a substantial financing shortfall, with a risk of depleting its cash reserves by November 2026. This scenario could ultimately result in a downgrade of its credit rating to BBB-.

The escalating construction costs associated with AI data centers have fueled a spike in industry-wide capital expenditures. AI data center projects across the United States are anticipated to attract over USD 2 trillion in investments in the coming years. Although most hyperscale providers maintain positive free cash flow, their investable cash reserves have dwindled due to stock repurchases and dividend payouts.

Recently, there has been a notable uptick in industry bond issuances, suggesting that future debt issuances may become a standard practice. Among all hyperscale providers, Oracle's financial standing appears the most precarious, characterized by negative free cash flow, a high debt-to-equity ratio, and significant off-balance-sheet lease obligations. Furthermore, Oracle's growth trajectory is heavily reliant on supplier financing arrangements, which not only increase its exposure to counterparty risk but also drive up the demand for its credit default swaps (CDS).