Moody's Ratings Flags Significant 'Counterparty Risk' For Oracle Corporation Following Its $300 Billion OpenAI Contract

Oracle Corporation (NYSE:ORCL) is one of the 10 Best AI Stocks to Buy According to Goldman Sachs. On September 17, Moody’s Ratings flagged significant ‘counterparty risk’ for Oracle Corporation (NYSE:ORCL) following its $300 billion AI contract with OpenAI.

Oracle is set to provide 4.5 gigawatts of compute to OpenAI over the next five years, which Moody’s sees as overwhelming for the company. The credit rating agency believes that this deal has tremendous potential for Oracle’s AI infrastructure business. But Moody’s also pointed out Oracle’s pipeline isn’t swelling; it is locking in. Moody’s has lowered the credit rating outlook to negative from stable, issuing a rating of Baa2, which is at the lower end of investment-grade credit ratings.

“Counterparty risk is always a key consideration in any type of project financing, particularly where there is a high reliance on revenue from a single counterparty. And in our view, Oracle’s data center build is effectively one of, if not the world’s largest, project financing,” according to Moody’s analyst.

The analyst also noted that the company’s debt will increase faster than its EBITDA, which could add to a forecast high leverage of 4x before Oracle’s EBITDA begins to surpass its debt.

“It is likely that free cash flow will also be negative for an extended period before reaching breakeven,” the analyst added.

The rating agency specifically highlighted the growing counterparty risk with Oracle, relying on major commitments from a small number of AI companies to fund its business model.

Since the Moody’s credit rating downgrade, Oracle Corporation (NYSE:ORCL) shares have plunged over 6.65% as of September 23.

Oracle Corporation (NYSE:ORCL) is a leading provider of integrated suites of applications, including secure, autonomous infrastructure in the Oracle Cloud. The company’s Oracle Cloud Infrastructure for AI computing is offering AI-powered applications and services.

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Disclosure: None. This article is originally published at Insider Monkey.