Oracle's AI Bet Burdens Balance Sheet with $23.7 Billion in Negative Free Cash Flow

Oracle's foray into artificial intelligence (AI) and cloud infrastructure has raised concerns about its financial solvency. The company, which has powered global banking, enterprise logistics, and government administration for half a century with its relational enterprise databases, is now struggling to fund its AI data center expansion. Oracle spent $55.7 billion on capital expenditures in fiscal 2026, up 162% year over year, but operating cash flow only rose 54% to $32.0 billion. As a result, the company generated negative free cash flow of $23.7 billion.

To cover this gap, Oracle raised $43 billion in new debt during the year, taking its total debt to roughly $167.4 billion. This has caught the attention of credit markets, with Oracle's credit default swaps (CDS) climbing to their highest levels on record, exceeding those seen during the 2008 financial crisis.

The real risk for Oracle is not its debt itself, but who it owes money to, namely frontier AI labs and high-growth generative AI startups that have leased out GPU capacity from the company. If these tenants default or scale back their spending, Oracle will be left with empty data centers, depreciating chips, and multi-year lease obligations.

While Amazon and Google would also feel the impact of a downturn in AI spending, their larger cash flows and more diversified businesses make them better positioned to weather it. For Oracle, whose AI infrastructure business has become a bigger driver of growth, the stakes are higher.