Oracle Stock Falls, Credit Rating Downgraded Amid AI Investment Scrutiny

Oracle shares fell 6.25 percent on Thursday to close at $124.21, its lowest level since late April 2025, as the company faces scrutiny over its artificial intelligence (AI) investments.The company’s shares had peaked at roughly $345 on Sept. 10, 2025. Since then, it has fallen by almost 64 percent.Since July 10, shares have declined on four of the five trading days. The trend followed a July 9 S&P Global report that downgraded the company’s credit rating from BBB to BBB-. In the report, S&P warned that Oracle’s rapidly expanding AI infrastructure was “increasing its overall credit risk.”“Oracle’s AI business requires significant upfront capital investments and long-term data center leases, both of which we have continually underestimated. Rising component costs could also pressure the economics of the AI business model,” the report said.Oracle’s drop was part of a wider selloff in chip stocks. The Philadelphia Semiconductor Index, composed of companies primarily engaged in the design, manufacture, and sale of semiconductors, declined by more than 4.2 percent on Thursday.Daily swings in chips have increasingly dictated the overall movement of the major U.S. stock indexes.“It comes strictly down to the weight of the chips ​in the S&P 500,” Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest in Elmhurst, said. “Three or four years ago, ​it was 8 percent, and now it’s over 20 percent.”GPU manufacturer Nvidia’s shares fell by 2.4 percent. Semiconductor manufacturer Broadcom saw shares decline by more than 5 percent. The overall S&P 500 index fell by a smaller 0.51 percent.The S&P report said that for fiscal year 2027 ending on May 31, Oracle is expecting its capital expenditure to hit $90 billion to $95 billion, which is “much higher” than S&P’s forecast of $60 billion.S&P now expects Oracle’s free operating cash flow deficit to widen to almost $42 billion.“Near-term cash flow will be worse than previously forecasted,” the report said.While this deficit is projected to shrink to roughly $25 billion in fiscal year 2028 as Oracle’s profitability improves, this forecast comes with an “elevated level of uncertainty,” according to the report. For instance, Oracle’s capital expenditure could be pushed higher than expected, adding to the financial woes.Out of Oracle’s customers, OpenAI accounts for almost half of its $638 billion in remaining performance obligations, that is, money expected from clients.OpenAI’s ability to meet these contractual obligations is contingent on its AI models, such as ChatGPT, being market leaders, S&P said.“If OpenAI were unable to pay Oracle, we believe Oracle could be left with massive data center leases that it might be unable to exit or have to re-lease to new tenants under less-favorable terms,” the report said.Last month, Oracle revealed in a filing with the Securities and Exchange Commission that it had laid off approximately 21,000 employees over the past year, representing roughly 13 percent of its global workforce.The company said that the “adoption and deployment of AI technologies across our operations have resulted, and may continue to result, in reductions to our workforce.”AI Investment WorriesEarlier on Tuesday, another major U.S. tech giant, IBM, suffered a 26 percent decline in share price, the largest single-day drop in the company’s 115-year history.Share prices tumbled after IBM CEO Arvind Krishna warned investors about weaker-than-expected second-quarter results, attributing it to the disappointing performance of the company’s z17 AI mainframe program. The z17 is the latest generation of IBM’s Z mainframe platform, built to integrate AI capabilities with systems used by large corporations.While the stock prices of Oracle and IBM have crashed this year, the S&P 500 index has posted a gain.Shares of Oracle, which opened at roughly $197 on Jan. 2, closed at $124.21 on July 16. During this period, IBM shares dropped from roughly $297 to around $219. In the meantime, the S&P 500 has risen from about 6,878 to around 7,533.A review published in the Harvard Law School Forum on Corporate Governance in October 2025 raised concerns about companies rushing into AI investments to remain competitive, even amid uncertainty about the payoff.In an interview with The Epoch Times in December 2025, Roman Eloshvili, founder of XData Group, expressed concerns about the credit risks associated with the AI spending boom.“Banks don’t seem to see how compressed their expectations are. The ability to monetize AI models is expected to grow at an unprecedented pace, but the technology remains in its infancy and is both untested and expensive to run,” Eloshvili said.“Lending banks with exposure to the hyperscalers, chip makers, and tech infrastructure builders would see credit loss if revenues dwindled and growth fails.”Reuters and Panos Mourdoukoutas contributed to this report.