Moody's Flags Risks in Oracle's $300 Billion AI Contracts

Moody's flags risk in Oracle's $300 billion of recently signed AI contracts

WASHINGTON, Sept 17 (Reuters) - U.S. credit rating agency Moody's Ratings flagged several potential risks in Oracle Corp's (ORCL.N), opens new tab $300 billion of recently signed artificial intelligence contracts, but stopped short of taking ratings action against the software giant. Oracle (ORCL.N), opens new tab said this month it expected booked revenue at its Oracle Cloud Infrastructure business to exceed half a trillion dollars. The Wall Street Journal then reported that OpenAI had signed a contract to purchase $300 billion in computing power from Oracle over roughly five years, marking one of the biggest cloud contracts ever signed. A majority of the new revenue Oracle described will come from the OpenAI deal, the report said. Moody's analysts on Wednesday referred to $300 billion in recently signed contracts without naming the customers involved. They noted the contracts highlight the "tremendous potential" for Oracle's AI infrastructure business. But they also brought attention to several risks laid out in Moody's July ratings action, opens new tab, where the agency revised Oracle's credit rating outlook to negative from stable. One of the main risks flagged by Moody's involved the "counterparty risk" of Oracle relying on large commitments from a small number of AI companies to fund its business model. "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 on Wednesday. "And in our view, Oracle's data center build is effectively one of, if not the world's largest, project financing," they added. The analysts further noted the company will see its debt increase faster than its EBITDA, which will contribute 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 wrote. Oracle had a Moody's issuer rating of Baa2, which is at the lower end of investment-grade credit ratings. Reporting by Matt Tracy; Editing by Jamie Freed Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * Artificial Intelligence Matt Tracy Thomson Reuters Reports on U.S. credit market activity, including corporate debt and credit ratings, U.S. Treasuries, commercial mortgages, and the ongoing public vs. private financing dynamic. He often reports on other topics and events in cooperation with team members across Reuters. Matt previously covered regulatory reviews and investigations into mergers and acquisitions, specifically anti-monopoly, national security, FCC and state-level investigations of some of the biggest deals since 2016. He has broken news on the government investigations into AT&T's merger with Time Warner, T-Mobile's purchase of Sprint, Bayer's merger with Monsanto, and many other multi-billion dollar combinations.

Moody's urgent outlook on Oracle's future growth path - here's what it means

Oracle growth outlook 2025: Oracle's AI ambitions have grown dramatically in recent weeks. After announcing a massive five-year, $300 billion deal to provide 4.5 gigawatts of compute power to OpenAI, the company's pipeline isn't just expanding, it's locking in, as per a report. But now Moody's has cautioned regarding the firm's future growth. Oracle's Remaining Performance Obligations (RPO), which represent contracted but undelivered work, soared 359% year-over-year to $455 billion. Management has hinted that this figure could soon top $500 billion, as per The Street report. This rapid growth has reshaped Oracle's balance sheet and positioned its cloud business as the company's central focus. Oracle's stock has reflected this momentum, rising over 81% so far in 2025, with six-month gains even higher at 96%, as per The Street. ALSO READ: Even after strongest quarterly performance since June 2021, SoftBank to layoff 20% of its Vision Fund team However, just days after announcing its latest deal, Moody's analysts issued a warning that could have major implications for Oracle's growth story. They highlighted the financial risk tied to Oracle's $300 billion AI contract with OpenAI, the largest in the company's history, according to The Street. Moody's cautions that such a concentrated deal places significant financial pressure on Oracle if OpenAI were to delay payments, restructure, or shift strategy, as per the report. Because of the scale and length of the contract, even small disruptions could have a big impact on Oracle's balance sheet, as per The Street report. ALSO READ: iOS 26 vs iOS 18: How your iPhone's home screen, lock screen, control center & features have changed Analysts also pointed out that Oracle's leverage could climb to nearly four times EBITDA before the company's new contracts begin to improve cash flow, as per The Street. While Moody's has not changed Oracle's current Baa2 rating, they warned that continued customer concentration and increasing debt levels could lead to further action if Oracle's financials don't improve, as per the report. Alongside these developments, Oracle recently announced a $300 million AI infrastructure contract, adding to its growing cloud backlog, as per The Street. This surge in RPO, up 359% year-over-year, shows that booked work is growing faster than Oracle's ability to deliver, as reported by The Street. But the size and duration of these multi-year infrastructure agreements could put pressure on Oracle's liquidity before sales catch up. Customer concentration and the execution of data-center buildouts are key factors that investors need to watch closely, as per The Street. What is Oracle's recent deal with OpenAI about? Oracle signed a huge five-year, $300 billion contract to supply AI compute power to OpenAI. Why is Moody's concerned about Oracle's growth? Because Oracle relies heavily on a few big contracts like OpenAI's, any hiccup could impact its financial health.

Oracle's Big AI Bet Faces Credit Risk, Rating Agency Warns - Oracle (NYSE:ORCL)

Oracle ORCL stock continues to spur investor optimism, buoyed by its artificial intelligence deals. However, on Wednesday, Oracle faced scrutiny as Moody's Ratings highlighted potential risks in its recently signed $300 billion artificial intelligence contracts. The rating agency commented that this development is significant as it raises concerns about Oracle's reliance on large commitments from a small number of AI companies, which could impact its business model. Also Read: Oracle Soars To Record Highs With Massive Cloud Contracts Tied To OpenAI Moody's Ratings highlighted risks tied to Oracle's $300 billion AI contracts, including its massive deal with OpenAI. However, it chose not to change the company's credit rating. It compared its data center expansion to one of the largest project financings. Moody's also warned against Oracle's debt rising faster than EBITDA, amounting to negative free cash flow for years before breaking even. Reuters reports that Moody's analysts noted the "tremendous potential" for Oracle's AI infrastructure business but flagged counterparty risk as a critical issue. OpenAI Risk Meanwhile, OpenAI, a key player in the AI industry, is grappling with financial challenges as it struggles to meet its obligations under the $300 billion deal with Oracle. Reports indicate that OpenAI lacks the funds to honor the agreement, raising questions about its future and the impact on Oracle. Despite these issues, some experts believe OpenAI's deal with Oracle underscores its early leadership in the AI sector, suggesting potential investor interest in private markets. Short-seller Jim Chanos has expressed skepticism, questioning the quality and timing of Oracle's backlog and comparing it to past accounting controversies. ORCL Price Action Oracle stock has gained 81% year-to-date, topping the S&P 500 Information Technology Sector Index's 17% returns. During premarket trading on Thursday, Oracle shares were up 1.36% at $305.51. The stock is trading within its 52-week range of $118.86 to $345.72, according to Benzinga Pro data. Oracle's impressive 81.54% year-to-date return reflects strong momentum in the software sector, bolstered by rising demand for cloud solutions. With a P/E ratio of 69.77, the stock is trading at a premium, indicating high investor expectations for future growth, especially as it approaches the upper end of its 52-week range. Read Next: Nvidia's China Chip Boom Faces Threat As Beijing Pushes For Homegrown AI Photo by thanmano via Shutterstock ORCLOracle Corp$305.041.20%Stock Score Locked: Edge Members Only Benzinga Rankings give you vital metrics on any stock - anytime. Unlock RankingsEdge RankingsMomentum93.40Growth66.15QualityN/AValue8.99Price TrendShortMediumLongOverviewMarket News and Data brought to you by Benzinga APIs