Global rating agency Moody’s has raised serious concerns over Oracle Corporation, flagging multiple red risks tied to its aggressive AI and cloud expansion. While the agency affirmed Oracle’s Baa2 credit rating, it changed the outlook from stable to negative, citing heavy debt levels, negative cash flows, and dependence on a few large AI contracts. Reuters
Key Red Flags Highlighted by Moody’s
1. Rising Debt and Leverage
Oracle’s debt is increasing faster than earnings growth. Moody’s expects the company’s adjusted debt-to-EBITDA ratio to cross 4x, raising risks for its long-term financial health.
2. Negative Free Cash Flow
With billions being poured into AI infrastructure and data centres, Oracle’s free cash flow has already turned negative and is expected to remain under pressure in the near term.
3. Counterparty Risk in AI Contracts
Moody’s highlighted that Oracle has tied up nearly $300 billion in AI contracts with just a handful of major customers. Heavy reliance on these deals could expose the company to outsized risks if any contract is delayed or cancelled.
4. Heavy CapEx Burden
Oracle is front-loading massive capital expenditures to scale up its AI and cloud business. While this could pay off in the long run, it puts immediate pressure on liquidity and financial flexibility.
5. Threat to Dividend and Buybacks
Moody’s warned that Oracle’s rising costs and debt servicing needs may force the company to scale down shareholder returns such as dividends and stock repurchases.
6. Uncertainty in AI Market
The AI industry is evolving rapidly, with shifting regulations, competition, and technology standards. Moody’s noted that Oracle’s large bets on AI infrastructure could face risks if the market develops differently than expected.
Why It Matters
Oracle is betting big on AI and cloud infrastructure to compete with giants like Microsoft, Amazon, and Google. However, Moody’s red flags suggest that financial risks may outweigh short-term gains. For investors, the concerns underline the importance of watching Oracle’s balance sheet, free cash flow, and contract execution closely.
Conclusion
While Oracle’s AI strategy signals ambition, Moody’s outlook revision serves as a warning that the company’s aggressive spending and debt-driven growth may come with long-term risks. How Oracle manages its cash flow, debt, and contract dependence will shape its future performance in the AI race.
