Oracle's $664 Billion AI Backlog Can't Stop Its Credit Risk From Hitting an 18-Year High

Oracle entered October with the largest cloud backlog in its history and some of the worst credit signals of its three-decade run as a public company. The database giant's remaining performance obligations climbed to $664 billion in the fiscal quarter ended August 31, even as free cash flow swung to negative $5.4 billion. S&P Global Ratings responded by cutting Oracle's long-term issuer rating to BBB-, one notch above speculative grade, while credit-default-swap spreads on its debt reached levels last seen roughly 18 years ago.

The quarter's underlying numbers explain why. Capital expenditure hit $28.5 billion in the period alone, and interest expense jumped 55% to $1.4 billion as Oracle piles on debt to fund data centers tied to OpenAI's Stargate project and other AI customers. The company has already completed a $20 billion at-the-market equity raise this year and has told investors it expects to raise roughly $40 billion more in debt and equity before the fiscal year ends, even as infrastructure revenue — the cloud segment renting out GPU capacity — grew 121% year over year.

The Credit Market's Verdict

Bond and derivatives markets are pricing the strain more bluntly than the stock. Oracle's five-year credit-default-swap spread widened to about 2.03 percentage points, its highest in nearly 18 years, while its 2055 bonds were trading around 77 cents on the dollar as of late September. Moody's has kept a negative outlook on the company, which now holds the lowest credit rating among major hyperscalers. The strain shows up operationally too: Oracle filed a force-majeure notice on September 24 tied to its 'Project Jupiter' data center in New Mexico, after state land regulators rejected elements of the project earlier this year — the kind of delay that can leave financed capacity sitting idle.

"You don't want to be making lease payments on a project that doesn't currently exist and you're not earning anything from it." — Johnathan Owen, Fund Manager, TwentyFour Asset Management

Oracle isn't an outlier so much as the furthest point on a curve the rest of the hyperscaler cohort is tracing. Microsoft, by contrast, still generated $66.99 billion in free cash flow in fiscal 2026 after $115.95 billion in capex, because 43% Azure growth and $678 billion in commercial backlog are converting to cash faster than Oracle's is. Sector-wide, hyperscalers are now spending roughly 102% of cloud revenue on capex, and Oracle has signaled its own workaround: pushing more spending off-balance-sheet into joint ventures and leases, with an executive telling investors plainly that 'it doesn't have to be Oracle CapEx.'

"It's not being financed by the fruits of the AI boom." — Luke Kawa, Bloomberg Odd Lots