S&P Global has downgraded Oracle's credit rating from BBB to BBB-, placing it just above junk status. The agency cited OpenAI as a 'key credit risk' for Oracle, highlighting the potential financial strain if the AI firm were to collapse. Oracle's AI business is consuming more cash than anticipated, with capital spending now projected to reach $95 billion by 2027, up from an earlier estimate of $60 billion. Revenue from these initiatives is not expected to materialize for years, according to S&P Global. OpenAI accounts for about half of Oracle's $638 billion in contractual obligations, making the company vulnerable to significant losses if the AI firm were to fail. Oracle would be left with massive data center capacity that it could not fill, exacerbating its financial exposure. This situation places Oracle in a more precarious position compared to AWS, Google, and Microsoft, which have internal workloads to absorb excess capacity and deeper financial reserves. Even their balance sheets would face serious challenges if OpenAI were to go under. Doubts are also emerging elsewhere, with SoftBank reportedly reducing a $10 billion loan backed by OpenAI shares to $6 billion due to lenders' difficulties in valuing the privately held company. OpenAI has delayed its IPO to 2027, further complicating its financial outlook.
S&P Global's analysis underscores the growing concerns about the financial implications of OpenAI's operations on its partners. The agency's downgrade reflects the heightened risk associated with the AI firm's financial stability and its impact on Oracle's long-term prospects. The situation highlights the broader implications of relying on a single entity for significant financial commitments in the rapidly evolving AI landscape.
Source: thedecoder
