Fitch Ratings has assigned Oracle Corporation's proposed benchmark size unsecured bonds a 'BBB' rating. The company will use net proceeds for general corporate purposes which may include capex, debt repayment, and acquisitions. Fitch has affirmed Oracle's Long- and Short-Term Issuer Default Ratings (IDRs) at 'BBB' and 'F2', respectively. The Rating Outlook is Stable.
Oracle shares rose 4% Monday premarket.
The ratings reflect Oracle's near-term elevated capex for AI compute infrastructure. Multi-year commercial contracts obligate Oracle to provide AI compute capacity to customers. Fitch expects Oracle to raise incremental capital through debt and equity to supplement internal FCF generation. For calendar year 2026, Oracle expects to raise $45 billion-$50 billion in cash through the new notes and equity issuances.
Fitch forecasts Oracle's EBITDA leverage will exceed 3.5x in fiscal 2026 but drop in fiscal 2027-2028 as incremental revenue and EBITDA from AI compute increase. Fitch expects capex for AI compute infrastructure to be repaid within the multi-year contract period.
Key Rating Drivers
Depressed Near-Term FCF: Oracle is making significant AI infrastructure investments that will exceed its internal FCF generation in the near term. Fitch expects this to result in negative pre-dividend FCF of over $26 billion in fiscal 2026 and $18 billion in 2027. Fitch expects Oracle to recapture these investments within the typical multi-year contract period with its customers. Fitch anticipates that incremental revenue and EBITDA generation for these investments will begin to normalize credit metrics in fiscal 2027 and significantly improve in fiscal 2028-2029. If AI compute demand growth remains robust, capex could stay elevated in the near term.
Manageable AI Industry Risk: A significant portion of Oracle's incremental capex and revenue growth is related to management's expectation that AI compute demand will continue to grow. This introduces risk because AI business models have yet to reach maturity. Fitch believes Oracle's risk exposure is manageable in the near term because its capex is tied to typical multi-year revenue contracts with major AI customers that have strong financial backings, including OpenAI, xAI, Meta, and Nvidia. Until AI business models become self-sustaining, continued external financing support will be necessary.
Oracle also has data center lease obligations for terms of 15 to 19 years. While these data centers will likely be used to support the AI compute capacity buildout, Fitch believes the risk is mitigated as data centers can alternatively be utilized for Oracle Cloud infrastructure in the event that AI compute growth does not meet expectation.
Strong Financial Flexibility: Oracle has strong financial flexibility, with staggered debt maturities through 2065 and approximately $2.820 billion due by fiscal 2026. Oracle's available cash and normalized FCF generation provides ample financial flexibility. Oracle had about $20 billion in cash, cash equivalents and marketable securities available as of fiscal 2Q26. While FCF is depressed in the near term due to elevated capex in support of cloud services growth, Fitch estimates normalized annual post-dividend FCF to be over $10 billion.
Near-Term Elevated Financial Leverage: Fitch expects the near-term increase in capex would require external financing and increase EBITDA leverage to over the previously established negative sensitivity of 3.5x. Fitch expects the trend to improve in fiscal 2027-28 as EBITDA contributions from AI investments begin to materialize. While EBITDA credit metrics remain the primary credit measures for Oracle, Fitch also uses a supplemental credit metric with lease adjustments to account for the rising lease expenses. Fitch estimates EBITDAR leverage to peak in fiscal 2026 at over 4x.
Significant Recurring Revenue: Fitch expects significant recurring revenue and FCF from Oracle's large installed customer base, high renewal rate and increasing scale of its cloud products. During fiscal 2Q26, approximately 80% of Oracle's revenue was recurring in nature. With recent AI compute contracts, recurring revenue is expected to rise substantially starting in calendar 2027. These contracts are typically multi-years in length with the potential for additional contracts to commence in future periods.
Solid Competitive Position: Fitch believes Oracle is uniquely positioned for cloud-service leadership, supported by its solid as-a-service markets, including enterprise resources, human resources, supply chain, manufacturing, data and marketing. With the addition of AI compute, Oracle is strengthening its position as a major cloud services provider. Fitch believes that customer and product diversification, along with missional criticality and high switching costs, will fortify Oracle's operating profile.
Constrained Shareholder Returns: Since the acquisition of Cerner in fiscal 2023, Oracle has pared back its shareholder returns while prioritizing normalizing credit metrics. With the anticipated capital needs during the AI- induced investment cycle, Fitch expects share buybacks to remain modest as the company prioritizes capital allocation for capex investments. The company had a net share repurchase of $2.5 billion during fiscal 2024 and $847 million during fiscal 2025. Fitch estimates share buybacks to remain close to the 2025 level in the near term.
Historically Acquisitive: There is potential event risk around acquisitions, and Fitch expects Oracle to constrain share repurchases after large acquisitions. Large acquisitions that require external financing could lead to incremental debt. Fitch believes more acquisitions are likely, potentially leading to significant aggregate acquisition spending.
Peer Analysis
Despite Oracle's strengthening credit metrics, the company faces competitive pressure from other cloud-based enterprise application providers like Salesforce, Inc. and Workday, Inc. Although these competitors focus on narrower sub-segments, they are growing significantly faster and potentially gaining market share.
Oracle also competes with other healthcare IT (HCIT) providers including Epic Systems, Athenahealth and McKesson Corp. (A-/Stable). Despite these competitors, Fitch believes enterprise resource planning's (ERP) and HCIT's products are mission critical with high switch costs, resulting in some of the most durable revenue streams among technology industry peers.
Fitch compares Oracle to peers in similar rating categories within the broader technology industries including International Business Machines Corporation (IBM; A-/Stable), Cadence Design Systems Inc. (A-/Stable) and Intel Corporation (Intel; BBB/Negative). Fitch views Oracle's business model and recurring revenues as more durable than IBM's and Intel's, and as having greater end-market diversity compared to Cadence Design Systems.
IBM operates at a similar revenue scale to Oracle but has lower EBITDA margins and higher cash flow from operations (CFO) minus capex to debt ratios, while offering greater clarity on its capital allocation policies. Cadence Design Systems has significantly smaller revenue scale, but its EBITDA leverage is consistently below 0.5x and its CFO-capex/debt ratios above 50%. Intel also operates at a similar revenue scale to Oracle. It is in the middle of a capex super-cycle with pre-dividend FCF likely to remain negative for the next two years.
Fitch’s Key Rating-Case Assumptions
--Accelerating revenue growth starting in fiscal 2027 with revenue over $100 billion by fiscal 2028;
--EBITDA margins expected to remain in the low-50s range;
--Dividends rising to over $6 billion in fiscal 2029;
--Capex reaches near-term peak in fiscal 2027 to $50 billion;
--Incremental debt and equity issuance through fiscal 2028 to fund FCF deficit;
--Aggregate acquisitions of $1 billion through fiscal 2029;
--Limited share repurchases through fiscal 2029 at levels consistent with the fiscal 2025 level.
Corporate Rating Tool Inputs and Scores
Fitch scored the issuer as follows, using our Corporate Rating Tool (CRT) to produce the Standalone Credit Profile (SCP):
--Business and financial profile factors (assessment, relative importance): Management (bbb, Moderate), Sector Characteristics (a-, Moderate), Market & Competitive Positioning (a, Higher), Diversification and Asset Quality (a, Lower), Company Operational Characteristics (a, Lower), Profitability (bb, Moderate), Financial Structure (bbb-, Higher), and Financial Flexibility (a-, Moderate).
--The quantitative financial subfactors are based on custom CRT financial period parameters: 10% weight for the forecast year 2025, 40% for the forecast year 2027, 40% for the forecast year 2028 and 10% for the forecast year 2029.
--The Governance Impact assessment of 'Good' results in no adjustment.
--The Operating Environment Impact assessment of 'aa-' results in no adjustment.
--The SCP is 'bbb'.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
--EBITDA leverage sustained above 3.5x or EBITDAR leverage sustained above 4x;
--(CFO-capex)/debt sustains below 15%;
--A shift in balanced funding mix between debt and equity as publicly disclosed for calendar year 2026;
--AI compute revenues not materializing during fiscal 1H 2027 suggesting failure to effectively monetize capex investments;
--Revenue declines over a sustained period and EBITDA margins remain below 40%, reflecting an eroding market position.
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
--EBITDA leverage sustained below 3.0x or EBITDAR leverage sustained below 3.5x;
--(CFO-capex)/debt sustains above 20%;
--Revenue growth at or above mid-single digits and EBITDA margin remaining stable at over 45%, reflecting a stable competitive position.
Liquidity and Debt Structure
Fitch expects Oracle's liquidity to remain solid. As of Nov. 30, 2025, liquidity was supported by $20 billion of cash, cash equivalents and marketable securities, a $6 billion commercial paper program. Fitch expects FCF will be depressed in the near term due to elevated capex in support of cloud services growth. Oracle is likely to issue incremental capital through a combination of debt and equity through at least fiscal 2028 to fund AI-related capex.
Oracle's maturity schedule is manageable. Fitch believes the company has sufficient financial flexibility through cash on the balance sheet and improving pre-dividend FCF, with FCF generation improving to the mid-single digit range by fiscal 2028 to address the maturities. Upcoming maturities through fiscal 2026 total approximately $2.820 billion of unsecured notes and term loan amortization.
Issuer Profile
Oracle derives over 80% of its revenues from core enterprise applications and cloud services. With near-term investments, it is positioned to continue serving as a leading provider of AI compute.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
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