S&P Downgrades Oracle Credit Rating to One Notch Above Junk

S&P Global Ratings announced Thursday it downgraded the credit ratings of software and AI cloud computing giant Oracle (ORCL) from BBB to BBB-, one notch above speculative-grade, or junk-bond, ratings.

Details of the Action

S&P lowered Oracle's long-term issuer credit rating to BBB- from BBB with a stable outlook. The downgrade reflects the agency's view that Oracle's "growing AI infrastructure business is diluting its strong business risk profile."

Company's Position

Oracle has not yet issued an official statement in response to the downgrade. However, the company has been heavily investing in data centers and AI infrastructure, leading to increased capital expenditure and higher debt levels.

Precedents and Context

The BBB- rating is the lowest investment-grade rating before entering junk territory. The extra yield, or spread, that investors demand to hold Oracle's 5.7% bonds due in 2036 recently stood at 1.84 percentage points, up from 1.75 percentage points Wednesday, according to MarketAxess.

Potential Financial Impact

The downgrade could increase Oracle's future borrowing costs as investors demand higher compensation for perceived risk. It may also affect the prices of its existing bonds in the secondary market. However, the stable outlook suggests S&P does not anticipate further downgrades in the near term.