Oracle's AI-Driven Debt Strategy and Credit Risk: Assessing the Sustainability of a $1.5 Trillion Bet

Oracle's aggressive foray into AI infrastructure has positioned it as both a beneficiary and a cautionary tale in the tech industry's debt-fueled race to dominate artificial intelligence. With a $1.5 trillion investment plan spanning 2025–2026, the company has taken on unprecedented debt to fund its ambitions, raising critical questions about the sustainability of its financial strategy and its exposure to OpenAI. This analysis examines Oracle's debt trajectory, the risks tied to its partnership with OpenAI, and whether its financial structure can withstand the pressures of a rapidly evolving market.

The Debt Load: A Double-Edged Sword

Oracle's debt levels have surged to $111.6 billion as of August 2025, up from $84.5 billion a year earlier, while its cash reserves have dwindled to $10.45 billion according to market data. To fund its AI infrastructure, the company has shifted from relying on free cash flow to accessing debt markets, issuing $18 billion in bonds in September 2025 alone, with maturities extending to 2065. Analysts project Oracle will raise $20–30 billion annually over the next three years, pushing its debt-to-equity ratio to over 462%-far exceeding peers like Alphabet and Meta, which maintain AA credit ratings.

. This debt binge is driven by Oracle's capital expenditures, which jumped to $8.5 billion in Q1 FY2026 from $2.3 billion in the prior year. The company's five-year credit default swaps (CDS) have climbed to 1.28 percentage points per year, the highest since 2009, signaling growing investor skepticism about its ability to service its obligations. Credit agencies have warned that Oracle's leverage could exceed 4x debt-to-EBITDA by 2027–2028, potentially triggering a downgrade to non-investment grade.

The OpenAI Gamble: A $300 Billion Contract with High Stakes

Oracle's most audacious bet is its 300 billion, five-year cloud computing contract with OpenAI under the Stargate Project, set to begin in 2027. This agreement, part of a broader $500 billion initiative involving SoftBank and others, aims to build 30 gigawatts (GW) of AI computing capacity in the U.S. Oracle's portion includes acquiring hundreds of thousands of Nvidia GB200 GPUs worth $40 billion and leasing 4.5 GW of computing power annually.

While the contract could account for nearly one-third of Oracle's revenue by 2028 according to market analysis, it also exposes the company to significant risks. OpenAI must raise $60 billion annually to meet its cloud-compute bill, and its total infrastructure spending from 2025–2035 is projected to reach $1.15 trillion. If OpenAI fails to secure funding or shifts to alternative suppliers-such as its own chip designs with Broadcom or partnerships with AMD/Nvidia-Oracle's revenue stream could falter according to industry experts.

Moreover, Oracle's remaining performance obligations (RPO) have skyrocketed to $455 billion, driven largely by the OpenAI deal. While this reflects strong contract pipelines, it also raises questions about whether these obligations will translate into recognized revenue. Analysts caution that Oracle's success hinges on converting RPO into cash flow while managing its debt burden.

Financial Resilience Amid Risk

Despite the risks, Oracle's core financials remain robust. The company generated $25.2 billion in EBITDA and $21.5 billion in operating cash flow over the last 12 months according to financial reports, providing a buffer against rising interest expenses. Its Cloud Infrastructure (IaaS) revenue grew 55% year-over-year in Q1 FY2026 to $3.3 billion, with projections of 77% growth for the fiscal year according to market data.

Oracle is also exploring alternative financing to mitigate debt risks. These include vendor financing with suppliers like Nvidia, off-balance sheet facilities, and potential investments from foreign entities according to industry analysis. The company's strategic focus on AI infrastructure and partnerships with tech giants like Microsoft position it as a key player in the AI-driven cloud market according to market experts.

Credit Outlook: A Tenuous Balance

Oracle's ability to maintain its investment-grade credit rating will depend on its capacity to generate future free cash flow and manage leverage. While its EBITDA growth and projected cloud revenue suggest long-term credit improvement, short-term challenges persist. The company's CDS spreads and debt-to-EBITDA ratios remain under scrutiny, with analysts warning that a miscalculation in its AI bets could trigger a downgrade.

Conclusion: A High-Stakes Bet on AI's Future

Oracle's $1.5 trillion AI infrastructure investment is a high-risk, high-reward strategy. The company's debt-fueled expansion has positioned it to capitalize on the AI boom, but its financial sustainability hinges on the success of the Stargate Project and its ability to convert RPO into revenue. While Oracle's core financials offer some reassurance, the risks of overleveraging and overreliance on OpenAI cannot be ignored. For investors, the key question remains: Can Oracle's AI ambitions outpace its debt? The answer will likely determine whether it becomes a tech titan or a cautionary tale in the AI era.