Oracle Corp is exploring a potential stake sale in its listed Indian subsidiary, Oracle Financial Services Software Ltd. (OFSS), as the US technology giant looks to strengthen its financial flexibility amid rising capital expenditure and mounting credit pressure. According to sources, Oracle Corp has sent out feelers to investors to gauge interest in acquiring a stake in OFSS, with the size of the proposed stake sale yet to be finalised and will depend on investor appetite. Oracle currently holds a 72.41% stake in OFSS as of the end of the June quarter, and the proposed sale comes as the company faces increased pressure on its balance sheet following S&P Global Ratings' downgrade.
Oracle's credit risk has escalated to near crisis levels as AI spending concerns intensify. Five-year credit default swaps on Oracle's debt rose to 2.03 percentage points annually on Monday, marking the highest level on record for data going back to the end of 2008, according to ICE Data Services. This surpassed the previous peak of 198.23 basis points reached on Friday, indicating unprecedented market concerns about the company's ability to service its debt. Oracle's existing bonds sold off across the curve, with the spread on Oracle's 6.7% bonds maturing in 2056 widening by 8 basis points to 263 basis points, while 5.7% notes due in 2036 widened by 9 basis points to 205 basis points. The company remains the biggest issuer in Bloomberg's US high-grade corporate bond index outside of the financial sector and has become the credit market's barometer for AI risk.
Oracle shares have declined more than 41% over the past year and are down over 60% from their September 2025 peak, marking one of the sharpest reversals among stocks linked to the artificial intelligence boom. The stock has now dropped about 63% from its peak of $345.72, with the company's market capitalization shrinking to about $365 billion. On July 9, S&P Global Ratings cut Oracle's credit rating from BBB to BBB-, leaving the company just one notch above junk status. The downgrade was driven by the enormous cost of Oracle's AI infrastructure build-out, with the market now treating Oracle's AI opportunity as a balance-sheet problem. According to Sevens Report Research, the downgrade could serve as a "canary in the coal mine" for the broader stock market, with Tyler Richey warning that Oracle may be the first mega-cap tech company to "roll over" into what could prove to be the early stages of a longer-term cyclical bear market for equities.
Despite the stock decline, Oracle reported record Q4 and FY26 results, helped by growth in cloud infrastructure and cloud applications. As reported by The Economic Times, Oracle Cloud Infrastructure revenue rose 93% in the quarter, demonstrating robust demand for the company's cloud services. The company's remaining performance obligations increased to $638 billion, showing strong demand for Oracle's cloud services, especially from companies building AI models and applications. However, the $638 billion backlog shows a concentration risk, with roughly half coming from a single customer: OpenAI.
The primary concern driving the stock decline is the substantial cost of meeting growing AI demand. Oracle spent $55.7 billion on capital expenditures in fiscal 2026, as it raced to build data centers for AI customers. The company generated $32 billion in operating cash flow, up 54% year over year -- and still spent it all, posting free cash flow of negative $23.7 billion for the year. S&P projects Oracle's fiscal 2027 capital expenditures will reach $90-95 billion, with the company's free operating cash flow deficit widening to about $42 billion. Oracle already carried nearly $130 billion in borrowings at the end of fiscal 2026. The company has also paused share buybacks as free cash flow has not been sufficient to cover both capital expenditure and dividend payouts, and in June, Oracle said it expects to conclude a round of layoffs affecting nearly 30,000 employees, or about 18% of its global workforce.
Meanwhile, Oracle Financial Services Software (OFSS) has outperformed its parent company, with the stock gaining about 20% over the last year and rising nearly 60% from its March 2026 lows. OFSS shares ended Thursday at ₹10,785, down 0.6% after initially touching day's lows. In a clarification filed with stock exchanges, OFSS said it had no knowledge of any such development and that there was no event requiring disclosure under SEBI's Listing Obligations and Disclosure Requirements (LODR) Regulations before the news report. The company noted it is the company's policy not to comment on market speculation and had already disclosed its June-quarter (Q1FY27) results on July 22, which also informed investors about the resignation of long-serving Managing Director and CEO Makarand Padalkar and the appointment of Chief Financial Officer Avadhut Ketkar as the new Managing Director and CEO.
