Oracle’s $638 Billion Backlog Can’t Offset a Credit Downgrade and a $23.7 Billion Cash Drain

Oracle's record $638B backlog fails to offset a credit downgrade to BBB-, negative $23.7B free cash flow, and a 56% stock plunge amid massive AI spending and OpenAI dependency.

Oracle is caught in a paradox of epic proportions. The software giant’s contracted future revenue has swelled to an unprecedented $638 billion, yet the company’s credit rating has just been cut to a single notch above junk, its free cash flow has plunged deep into negative territory, and the stock has lost more than half its value from a year ago.

S&P Global Ratings lowered Oracle’s long-term credit rating to BBB- over the weekend, putting the company on the cusp of non-investment-grade status. The decision reflects the staggering cost of the AI infrastructure build-out: capital expenditures hit $55.7 billion in fiscal 2026, a 162% year-over-year surge, and the company projects roughly $70 billion in spending for fiscal 2027. That cash-burning pace has flipped Oracle’s cash flow statement – from a steady generator of free cash to a consumer, with minus $23.7 billion in free cash flow.

The stock price captures the market’s anxiety. On Friday, shares closed at €123.28 in Frankfurt, down 2.34% for the day, and have now lost 29.12% over the past month. The decline from the 52-week high of €280.70 touched last September stands at 56%, while the distance to the year’s low of €113.86 has shrunk to just over 8%. The 50-day moving average of €158.67 and the 200-day average of €166.26 both sit far above the current level, confirming a firmly entrenched downtrend. The 14-day relative strength index of 31.1 points to oversold conditions, a setup that has historically preceded technical bounces – though given the fundamental pressures, no such rebound is guaranteed.

The credit downgrade highlights a risk that equity investors have been slow to price in: concentration. Approximately 54% of Oracle’s massive $638 billion remaining performance obligations – the backlog of contracted cloud and AI services – is tied to a single customer, OpenAI. For credit analysts, that dependency is a red flag of the first order, especially as the company scrambles to finance its expansion. Oracle is planning to raise between $45 billion and $50 billion (in euros) this year through a mix of new debt and equity instruments, including a potential $20 billion at-the-market equity offering. The company has separately stated it needs about $40 billion in funding during fiscal 2027. The bond market has already delivered its verdict: credit default swap spreads have widened to levels last seen during the 2008 financial crisis.

On the operational front, the strain is visible in headcount. Oracle has already cut a net 21,000 jobs in the current fiscal year through May 2026, with reports of an additional 20,000 to 30,000 layoffs under consideration as management tries to stabilize the balance sheet. The company is targeting operating margins of 30% to 40% for its new AI data centers – an ambitious goal for a business that is currently generating heavy upfront costs and negligible profits.

A regulatory hurdle also looms. Starting July 13, 2026, Oracle’s UK subsidiary will be formally designated as a “Critical Third Party” by the Bank of England and the Financial Conduct Authority. This gives regulators direct oversight of Oracle’s services to the financial sector, including mandatory resilience tests and incident reporting, adding a layer of compliance cost and operational scrutiny.

Amid the turbulence, Oracle continues to pay a quarterly dividend of $0.50 per share (unchanged), with the ex-dividend date now passed and payment scheduled for July 24. The annualized yield of roughly 1.4% provides little solace to shareholders who have watched the stock shed over a quarter of its value year to date.

Analysts, on average, still see a theoretical upside of about 79% to a target of €220.57, but such estimates were set before the credit downgrade and negative cash flow revelation. The core question remains whether Oracle’s AI investment cycle will produce profits faster than the debt pile generates interest costs. So far, the only clear answer is a growing mountain of liabilities – the promised cloud revenue is still waiting in the wings.