Is Oracle's AI Debt Sustainable?
Oracle's AI debt is serviceable today but leaves little room for error: at its May 31, 2026 year-end it owed $129.5 billion against $31.3 billion of cash, and operating profit covered interest about 4.5 times. The strain is that it spent $55.7 billion on capital expenditure in fiscal 2026 against $32.0 billion of operating cash flow, so free cash flow was negative $23.7 billion.
This is analysis of what the numbers show, not advice on owning the stock.
How much debt does Oracle have, and how much cash?
| Measure (fiscal 2026, May 31, 2026) | Amount |
|---|---|
| Total debt | $129.5 billion |
| Cash and equivalents | $31.3 billion |
| Net debt (derived) | About $98.3 billion |
| Shareholders' equity | $42.5 billion |
| Operating profit | $20.6 billion |
| Interest expense | $4.6 billion |
| Operating profit covers interest | 4.5 times (4.9 times a year earlier) |
Debt, equity and cash flow come from this site's 10-year financials, built from Oracle's 10-K filed June 22, 2026. Cash, interest expense and the balance sheet items for the Z-score below are read from the same filing. Net debt is debt minus cash, derived here.
Debt is more than 6 times operating profit ($129.5 billion against $20.6 billion), and press reports put debt higher since year-end (see below).
Is Oracle's free cash flow covering its AI spending?
No, not at the moment. Free cash flow is operating cash flow minus capital expenditure, and Oracle's turned negative in fiscal 2025 and fell sharply in fiscal 2026. The free cash flow yield post explains why that number matters for debt.
| Fiscal year (May) | Revenue | Operating cash flow | Capex | Free cash flow | Total debt |
|---|---|---|---|---|---|
| 2022 | $42.4B | $9.5B | $4.5B | $5.0B | $75.9B |
| 2023 | $50.0B | $17.2B | $8.7B | $8.5B | $90.5B |
| 2024 | $53.0B | $18.7B | $6.9B | $11.8B | $86.9B |
| 2025 | $57.4B | $20.8B | $21.2B | -$0.4B | $92.6B |
| 2026 | $67.4B | $32.0B | $55.7B | -$23.7B | $129.5B |
Oracle's operating cash flow (purple) against capital expenditure (gold), $ billions, from this site's 10-year data. Capex was 83% of revenue in fiscal 2026.
Capex was 83% of revenue in fiscal 2026, up from about 5% a decade ago. Oracle also paid $5.8 billion of dividends that year, so cash needs came from borrowing, the $31.3 billion cash balance and equity issuance.
What is Oracle's Altman Z-score?
Oracle is not scored on this site's Altman Z-Score screener because its balance sheet items were not available there, so the figure below is computed here from the 10-K with the same Z″ formula (see the glossary).
- Fiscal 2026: 0.80, in the distress zone (below 1.1).
- Fiscal 2025: 0.24, also below 1.1, so the score rose as equity grew and operating profit climbed.
Read it carefully. Oracle's retained earnings are negative (-$4.3 billion) partly because it spent years buying back stock, and the model was built for older, asset-heavy industrials. A low score is a prompt to read the balance sheet, not a default forecast.
What has happened since the 10-K?
- Capex guidance: Oracle's first-quarter fiscal 2027 update, reported by ERP Today on September 11, 2026, kept fiscal 2027 capex at $90 billion to $95 billion, with first-quarter capex of $28.5 billion, free cash flow of negative $5.4 billion and a completed $20 billion at-the-market stock sale.
- Contracts: the same report puts remaining performance obligations at $664 billion, signed work that has not yet been billed.
- Rating: S&P cut Oracle to BBB-, one notch above speculative grade, on July 9, 2026, as several outlets reported at the time. Startup Fortune on October 14, 2026 adds debt near $167 billion and an S&P-projected free cash flow deficit of nearly $42 billion in fiscal 2027. It also reports that Moody's has a negative outlook and that OpenAI is expected to start paying about $60 billion a year in 2027.
S&P's own release was not available to this site, so treat the rating details as reported, not confirmed (outlets differ on the outlook attached to the cut). The $167 billion differs from the 10-K's $129.5 billion because it comes later and may use a broader definition of debt.
What would strain or ease the picture?
| Scenario | What it would do |
|---|---|
| Contracts start paying on schedule in 2027 | Revenue grows into the spending; operating cash flow rises toward capex |
| Customers repay part of the build costs | Net capex falls below the headline figure, as management has said it expects |
| A major customer delays or cuts a commitment | Spending stays, revenue slips, debt keeps rising |
| A rating cut to junk | Higher borrowing costs and fewer lenders |
| More stock sales | Eases debt but dilutes owners, as the $20 billion sale did |
The market's price already reflects the uncertainty: this site's reverse DCF says Oracle's $126.16 share price implies free cash flow growing about 33% a year, see what growth a share price implies. For the stock page, see Oracle (ORCL); for a milder debt case, how much debt Comcast has.
What can you watch next?
- Whether quarterly free cash flow stops getting more negative.
- Interest expense against operating profit (4.5 times at year-end).
- Net debt after each new bond or stock sale.
- Rating agency actions and any change in contract timing.
For a general checklist see how to tell if a company might go bankrupt.
Oracle debt FAQ
How much debt does Oracle have?
In its fiscal 2026 10-K (May 31, 2026) Oracle's total debt was $129.5 billion against $31.3 billion of cash, so net debt was about $98.3 billion. Press reports put debt near $167 billion later in 2026, after more borrowing.
Can Oracle pay the interest on its debt?
From operating profit, yes: fiscal 2026 operating profit of $20.6 billion covered $4.6 billion of interest expense about 4.5 times. Coverage falls if debt keeps rising faster than profit.
Why is Oracle's free cash flow negative?
Because capital spending on AI data centers ($55.7 billion) was larger than the cash its operations produced ($32.0 billion) in fiscal 2026, leaving free cash flow of negative $23.7 billion.
What is Oracle's credit rating?
S&P cut Oracle to BBB-, one notch above speculative grade, on July 9, 2026, according to several news reports, and one report says Moody's has a negative outlook. Check the rating agencies for the current status.
Does this mean Oracle is at risk of default?
The numbers do not show an immediate repayment problem, but they show thin room for error while spending exceeds cash flow. Whether it eases depends on the contracts paying as planned and on financing costs.