Moody’s flags risks in Oracle’s massive $300B AI infrastructure bet

Moody’s Ratings has flagged several potential risks in Oracle’s recently signed $300 billion in AI contracts, primarily with OpenAI, though the credit rating agency stopped short of taking ratings action against the software giant. The warning highlights concerns about Oracle’s heavy reliance on a small number of AI companies to fund its massive data center expansion, which Moody’s considers “effectively one of, if not the world’s largest, project financing.”

What you should know: Oracle’s $300 billion contract windfall comes primarily from a five-year deal with OpenAI for computing power, representing one of the biggest cloud contracts ever signed.

• Oracle said this month it expected booked revenue at its Oracle Cloud Infrastructure business to exceed half a trillion dollars.
• The Wall Street Journal reported that a majority of Oracle’s new revenue will come from the OpenAI deal.
• Moody’s analysts acknowledged the contracts highlight the “tremendous potential” for Oracle’s AI infrastructure business.

The big picture: Moody’s views Oracle’s data center build as essentially a massive project financing venture that carries significant counterparty risk.

• The agency previously revised Oracle’s credit rating outlook to negative from stable in July, citing concerns about the company’s AI infrastructure spending strategy.
• Oracle currently holds a Baa2 issuer rating from Moody’s, which sits at the lower end of investment-grade credit ratings.

Key risks identified: Moody’s highlighted several financial concerns stemming from Oracle’s AI infrastructure investments.

• “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 analysts wrote.
• The company will see its debt increase faster than its EBITDA (earnings before interest, taxes, depreciation, and amortization), contributing to a forecast high leverage of 4x before Oracle’s EBITDA begins to outpace its debt.
• “It is likely that free cash flow will also be negative for an extended period before reaching breakeven,” the analysts noted.

Why this matters: The Moody’s assessment underscores the high-stakes nature of Oracle’s bet on AI infrastructure, where massive upfront investments depend heavily on the financial stability and continued growth of a handful of AI companies like OpenAI.