---
title: "S&P lifts SanDisk and Kioxia to BBB as Oracle sits one notch above junk on a $42 billion cash deficit"
description: "Within 48 hours, S&P lifted SanDisk into investment grade and raised Kioxia a notch, while Oracle sits at BBB- on a free-cash-flow deficit the agency models at $42 billion for fiscal 2027. The memory makers sell into the same boom for cash today; Oracle borrows against payments that start in 2027."
publisher: "The Inference"
section: "Markets"
published: 2026-10-15T22:41:41.149Z
modified: 2026-10-15T22:41:41.149Z
canonical: https://theinference.org/article/s-p-lifts-sandisk-and-kioxia-to-bbb-as-oracle-sits-one-notch-above-junk-on-a-42-billion-cash-deficit
language: en
keywords: "Oracle, S&P, Credit Ratings, Memory Chips, Bonds, AI"
---

# S&P lifts SanDisk and Kioxia to BBB as Oracle sits one notch above junk on a $42 billion cash deficit

> Within 48 hours, S&P lifted SanDisk into investment grade and raised Kioxia a notch, while Oracle sits at BBB- on a free-cash-flow deficit the agency models at $42 billion for fiscal 2027. The memory makers sell into the same boom for cash today; Oracle borrows against payments that start in 2027.

## Two upgrades in 48 hours, one cut since July

On October 12, 2026, [S&P Global Ratings](https://theinference.org/markets/companies/s-p-global-ratings) raised SanDisk, the Nasdaq-listed NAND flash maker, to BBB from BB+, the single step from speculative grade into investment grade, on AI-driven demand for memory [1]. A day later it raised [Kioxia](https://theinference.org/markets/companies/kioxia-holdings-corporation), the Japanese NAND and solid-state-drive supplier, from BBB- to BBB with a positive outlook [2].

The same agency has held [Oracle](https://theinference.org/markets/companies/oracle), the software and cloud company borrowing to build AI data centers, at BBB- since July 9, one notch above speculative grade [3]. [Moody's](https://theinference.org/markets/companies/moody-s), the other major rating agency, carries Oracle on negative outlook [3]. The memory makers are paid as chips ship; Oracle's largest contract begins paying in 2027.

## The notch decides who can hold the bonds

A further cut, to BB+, would automatically remove roughly $120 billion of Oracle bonds from investment-grade indexes, forcing sales by funds restricted to investment-grade paper, according to a Seeking Alpha analysis [4]. The mechanism matters more this month: [The Inference reported on October 15 that the market funding AI data centers with debt has frozen](https://theinference.org/article/traders-put-a-one-in-five-chance-on-oracle-defaulting-within-five-years).

The mirror image lifted SanDisk. Revenue rose 175% in its fiscal 2026, it repaid all of its funded debt, and [S&P projects free cash flow above $23 billion for fiscal 2027](https://au.finance.yahoo.com/news/p-upgrades-sandisk-bbb-ai-222009270.html) [1]. Kioxia has run net cash since mid-2026 and is moving toward multiyear supply agreements covering about half its shipments by 2028 [2].

## Oracle borrows now, collects from 2027

[Oracle guided fiscal 2027 capital spending to $90–95 billion](https://financefeeds.com/oracle-664-billion-backlog-and-18-billion-in-debt/), near $70 billion net of customer prepayments [5][4]. S&P lifted its own forecast for that spending almost 60%, from $60 billion to $95 billion, after talks with management, and said it is "playing catch up" [6]. The agency models Oracle's free-cash-flow deficit widening to $42 billion in fiscal 2027, [after a burn of nearly $24 billion in the year ended May 2026](https://thenextweb.com/news/oracle-sp-downgrade-ai-spending-junk-risk) [3][5].

*Chart: **From late 2025 the gap between Oracle's capex and its cash flow stopped being seasonal** Line chart of Oracle's quarterly capital expenditure and operating cash flow from early 2024 to August 2026; capex climbs from under $2 billion to $28.5 billion and stays above operating cash flow in every quarter from late 2025.*

*Quarterly capital expenditure vs operating cash flow, US$ billions, eleven fiscal quarters to August 2026. Source: Oracle SEC filings. [9]*

The backlog Oracle borrows against is $664 billion in remaining performance obligations, its measure of contracted future revenue, with about half expected to convert within 36 months [5]. Roughly $300 billion of that, about 45%, is tied to [OpenAI](https://theinference.org/markets/companies/openai), which begins paying about $60 billion a year under its reported five-year, 4.5-gigawatt cloud contract only in 2027 [5][7].

Bondholders have already priced that schedule. [Five-year credit-default swaps, the insurance against default, recently traded above 200 basis points](https://www.msn.com/en-us/money/economy/oracle-s-credit-default-swaps-hit-records-as-2056-bonds-yield-over-8/ar-AA2d5Grf), a level last reached in the 2008 crisis [6]. Separately, $18 billion of loans tied to Project Jupiter, Oracle's New Mexico data-center campus, trade at 89–91 cents on the dollar [5].

## What S&P is grading is OpenAI's ability to pay

Oracle co-CEO Clay Magouyrk says OpenAI can "of course" cover its payments, pointing to ChatGPT's 800 million weekly users, and $75 billion of the backlog is customer-prepaid GPU purchases [7]. OpenAI lost $38.5 billion in 2025 [8].

[S&P kept Oracle investment grade on the argument](https://finance.yahoo.com/markets/stocks/articles/p-kept-oracle-investment-grade-083200547.html) it should be "harvesting cash flow at years three, four, five" of its contracts, while calling it a "show me" story in a "no moat business" [6].

Two readings will settle whether the split holds. [OpenAI's annualized revenue, corrected on October 8 to about $50 billion](https://finance.yahoo.com/markets/stocks/articles/openai-corrects-annualized-revenue-figure-183756345.html) against the $68 billion investors had been using, tests the payer [8]. Oracle's December quarter, the second of its fiscal 2027, tests whether the $664 billion backlog converts to revenue on schedule [5].

## Takeaway

S&P moved SanDisk and Kioxia up into the credit ladder's middle rungs on AI memory cash flow while Oracle stays at BBB-, borrowing $90-95 billion a year against a $664 billion backlog that only starts paying in 2027.

## Sources

1. [Investing.com via Yahoo Finance Australia, S&P upgrades SanDisk to BBB as AI memory demand drives cash flow past $23B, 12 October 2026](https://au.finance.yahoo.com/news/p-upgrades-sandisk-bbb-ai-222009270.html)
2. [Investing.com via Yahoo Finance, S&P upgrades Kioxia to BBB on strong AI-driven growth and upbeat outlook, 13 October 2026](https://finance.yahoo.com/technology/ai/articles/p-upgrades-kioxia-bbb-strong-150735245.html)
3. [The Next Web, Oracle is one notch above junk after S&P downgrade as AI data-centre spending burns through cash, 16 July 2026](https://thenextweb.com/news/oracle-sp-downgrade-ai-spending-junk-risk)
4. [TheStreet via MSN, Oracle's credit default swaps hit records as 2056 bonds yield over 8%, 27 September 2026](https://www.msn.com/en-us/money/economy/oracle-s-credit-default-swaps-hit-records-as-2056-bonds-yield-over-8/ar-AA2d5Grf)
5. [FinanceFeeds, Oracle's $664B Backlog and $18 Billion in Debt the Market Won't Price at Par, 25 September 2026](https://financefeeds.com/oracle-664-billion-backlog-and-18-billion-in-debt/)
6. [Kevin Koharki, Fortune via Yahoo Finance, S&P kept Oracle investment grade. Its own numbers don't support that call., 18 September 2026](https://finance.yahoo.com/markets/stocks/articles/p-kept-oracle-investment-grade-083200547.html)
7. [Startup Fortune, S&P's downgrade leaves Oracle financing OpenAI's bet years before it pays off, 15 October 2026](https://startupfortune.com/sps-downgrade-leaves-oracle-financing-openais-bet-years-before-it-pays-off/)
8. [Quartz via Yahoo Finance, OpenAI corrects annualized revenue figure to $50 billion, 8 October 2026](https://finance.yahoo.com/markets/stocks/articles/openai-corrects-annualized-revenue-figure-183756345.html)
9. [Oracle Corporation, quarterly figures from its SEC filings, retrieved 15 October 2026](https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001341439)


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S&P lifts SanDisk and Kioxia to BBB as Oracle sits one notch above junk on a $42 billion cash deficit — The Inference. Canonical: https://theinference.org/article/s-p-lifts-sandisk-and-kioxia-to-bbb-as-oracle-sits-one-notch-above-junk-on-a-42-billion-cash-deficit