A top credit rating agency is raising fresh concerns over Oracle’s aggressive expansion into artificial intelligence, even as the company holds on to its investment-grade status.
Moody’s says it is watching closely as Oracle takes on vast new obligations tied to AI, pointing to structural risks that could weigh on the software giant in the coming years, reports Reuters.
Earlier this month, Oracle shares rocketed as much as 43% in a single day, just as news broke that the cloud service provider inked a massive $300 billion deal with OpenAI. Oracle also said it expected booked revenue at its Oracle Cloud Infrastructure unit to exceed half a trillion dollars.
Analysts at Moody’s warn that Oracle’s fate appears to be tied to one AI firm.
“Counterparty risk is always a key consideration in any type of project financing, particularly where there is a high reliance on revenue from a single counterparty.”
Moody’s also warns that Oracle will likely accumulate massive debt before it turns a profit. Analysts forecast leverage hitting 4x as debt grows faster than EBITDA.
“It is likely that free cash flow will also be negative for an extended period before reaching breakeven.”
But the analysts note that the contracts offer “tremendous potential” for the long haul for Oracle’s AI infrastructure business.
“And in our view, Oracle’s data center build is effectively one of, if not the world’s largest, project financing.”
Oracle retains a Baa2 issuer rating, the lower end of investment grade.
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