Oracle’s Real Debt Problem Is Off the Balance Sheet
The $129 billion in bonds is visible. The $248 billion in future data-center leases is not, and that distinction is where the actual risk lives.
The question investors keep asking is whether Oracle has a debt crisis. The better question is whether they are looking at the right number.
The on-balance-sheet figure is bad enough. Total debt reached $129.5 billion at the close of fiscal 2026, with long-term borrowings at $122.3 billion after Oracle raised about $42.7 billion in senior notes proceeds and $5.0 billion in mandatory convertible preferred stock proceeds inside a single year. Capital expenditure hit $55.7 billion, equal to roughly 83% of revenue. Free cash flow ran to negative $23.7 billion. S&P cut the company to BBB-, the lowest investment-grade rating before junk, on July 9, 2026. Five-year credit default swaps have widened to about 295 basis points, and have been reported trading at levels more typical of lower-rated credit.
So yes, that is a debt problem. But the figure that deserves more attention sits entirely off the balance sheet: Oracle reported $248 billion in additional lease commitments, substantially all related to data centers, that had not yet commenced and were not reflected in reported liabilities as of November 30, 2025. Add that to the $129.5 billion already on the books, and the true capital commitment dwarfs what any standard screen surfaces.
The force majeure episode last month made this concrete. Axios reported in late September 2026 that Oracle sent the developer of a New Mexico data center project known as Project Jupiter a notice citing force majeure, reserving its right to delay payments if the project is derailed. Reuters also reported the notice and tied it to concerns about delays in securing power for the facility. That is not the behavior of a company navigating its obligations comfortably.
The counterargument is real, though. Remaining performance obligations reached $638 billion at fiscal year-end. Only about $5.7 billion of long-term borrowings were reclassified to current liabilities during fiscal 2026, and much of Oracle’s debt stack is long dated. Operating cash flow is strong: Oracle reported $32.0 billion of operating cash flow for fiscal 2026. Cloud revenue grew 47% year over year in Q4, driven by 93% growth in cloud infrastructure revenue. Oracle is not illiquid today.
The structural risk is different. Street cash flow forecasts vary, but published consensus models have shown fiscal 2027 free cash flow still deeply negative, around negative $37.6 billion. That means the financing gap may widen before it closes. The general point stands: a downgrade into junk can trigger forced selling from investment-grade-only mandates, and that risk can show up via a ratings action even without an immediate earnings collapse.
That is the asymmetry worth watching. Oracle’s $638 billion backlog converts at whatever pace its customers actually deploy workloads. The debt matures on a fixed schedule. If AI spending slows and the backlog defers, the gap between committed obligations and arriving revenue does not compress gracefully. It compounds.
Oracle does not have a liquidity crisis this week. What it has is a balance sheet structured on an assumption that AI infrastructure spending accelerates on schedule through 2031, with almost no room for the timeline to slip.
