Oracle shares hit 52-week low as S&P cuts credit rating amid AI capital expenditure concerns
Despite a 63% decline from its peak and a looming equity issuance, the cloud giant reports strong revenue growth and a $638 billion backlog, though concentration risk with OpenAI remains a key concern.
Oracle shares touched a fresh 52-week low of $121.50 on Friday, marking a 63% decline from its high of $345.72 as its market capitalisation shrank to approximately $365 billion. The sell-off accelerated following a decision by S&P Global Ratings to cut the company’s credit rating from BBB to BBB-, leaving the firm one notch above junk status. The downgrade underscores growing investor concern regarding the balance-sheet strain caused by Oracle’s aggressive artificial intelligence infrastructure expansion.
The rating agency highlighted that fiscal 2026 capital expenditures reached $55.7 billion, entirely consuming the company’s $32 billion in operating cash flow and resulting in a negative free cash flow of $23.7 billion. S&P projects this pressure will intensify, forecasting fiscal 2027 capital expenditures to rise to between $90 billion and $95 billion, with a free operating cash flow deficit widening to approximately $42 billion. To manage liquidity amid these outlays, Oracle plans to issue another $20 billion in equity later this calendar year, following a $5 billion issuance of mandatory convertible preferred stock in February.
Despite the macroeconomic headwinds and credit downgrade, Oracle reported robust fiscal 2026 results, with revenue growing 17% year over year to $67.4 billion. The company’s cloud infrastructure segment, which sells AI computing capacity, saw a 93% surge in the fourth quarter to $5.8 billion. Management has guided for fiscal 2027 revenue to climb approximately 34% to $90 billion, although non-GAAP earnings per share are expected to grow at a slower pace of 18% to $8.05, constrained by rising depreciation and interest costs associated with the build-out.
A significant concentration risk remains a focal point for analysts, with S&P noting that roughly half of Oracle’s $638 billion in remaining performance obligations is tied to a single customer, OpenAI. This backlog increased by $85 billion in the prior quarter alone, up 363% year over year. However, approximately $75 billion of these recent large AI contracts involve customers prepaying for or supplying graphics processing units themselves, which shifts some of the infrastructure costs off Oracle’s books and mitigates the immediate capital burden.
At current levels, Oracle trades at roughly 16 times the adjusted earnings management has guided for the coming fiscal year, a multiple typically associated with slower-growing legacy software firms rather than a business projecting 34% revenue growth. While the negative free cash flow and credit downgrade present real risks, the valuation suggests that a significant portion of potential failure is already priced in, provided the company can navigate the concentration risk and convert its substantial backlog into cash flow.
