S&P just cut Oracle to one notch above junk, and the stock went UP anyway.
Think about that for a second...
Back in December I told you the AI arms race would keep rewarding capex right up until the moment it didn't, and I pointed straight at Oracle.
The stock is now down more than 55% from its high and this week S&P downgraded its credit to the lowest rung of investment grade, which means one more cut and Oracle wears a junk rating for the first time in its history.
The downgrade landed because the cash bleed is getting MUCH worse. S&P now sees Oracle burning close to $42 billion in free cash flow next year, nearly double its earlier estimate, with capex rocketing toward $90 billion and a single customer (OpenAI) sitting behind roughly half of that $638 billion backlog.
The bond market looked at all of that and reached for insurance. The stock market looked at the exact same company and bid it higher.
When those two disagree like this, 45 years in this business has taught me to side with the bondholders every single time.
They get paid before shareholders do, so they tend to see the trouble first.
And Oracle is now funding this buildout with equity instead of debt, with another $20 billion in stock issuance slated for this year.
A company confident in its own cash flows borrows against them. A company bracing for a downgrade dilutes its shareholders instead.
Oracle showed you which one it is.
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