What Is a Credit Rating? The Grade That Decides What Debt Costs
What Happened
Moody's Ratings published a report this week warning that the enormous amounts Big Tech is spending on AI are starting to threaten the credit quality of six companies: Microsoft, Amazon, Alphabet, Meta, Oracle and CoreWeave.
The scale is hard to picture. Moody's projects those companies will spend around $785 billion on data centers and equipment this year, heading toward roughly $1 trillion next year. Their combined direct debt has reached about $460 billion. Their commitments to lease data center space add up to about $1.2 trillion — and more than $820 billion of that is for buildings that don't exist yet.
Why It Matters
These are the richest companies on earth. They used to be famous for having so much cash they didn't know what to do with it. Software is cheap to copy, so once you've built it, every additional customer is nearly pure profit.
AI broke that formula. Running large AI models requires actual warehouses full of expensive chips that consume enormous amounts of electricity. That's not a software business anymore — it looks more like building factories or power plants. So even Microsoft and Amazon are borrowing at scale to pay for it, and Moody's is pointing out that borrowing has a limit.
The Concept: Credit Ratings
A credit rating is a letter grade that measures how likely a borrower is to pay back what it owes. Three companies do most of this grading: Moody's, S&P, and Fitch. They rate corporations, cities, and entire countries.
If you already know what a credit score is, you know the concept. A credit score is your personal grade as a borrower, on a scale from 300 to 850. A credit rating is the same idea for institutions, using letters instead.
Investment grade — roughly Aaa down to Baa3. Considered safe. Pension funds and insurance companies are often required to stick to these.
Below investment grade — Ba1 and lower. Nicknamed "junk." Riskier, so investors demand higher interest to lend.
The gap between them is the whole game. Oracle currently sits at Baa2 with a negative outlook, which is two notches above junk.
Here's why that matters so much: a downgrade makes borrowing more expensive, exactly when the company needs to borrow more. Investors see a worse grade, demand a higher interest rate to compensate for the risk, and the company's costs rise. If the rating drops out of investment grade entirely, a whole category of large investors is forced to sell the bonds.
Moody's was careful to say Microsoft, Alphabet, Amazon and Meta still have among the strongest balance sheets in the world and aren't in immediate danger. The pressure is concentrated on the smaller, lower-rated players. That distinction is the point of a rating system — it separates "spending a lot" from "spending more than you can afford."
Why Teens Should Care
You will get a credit score long before you get a credit rating, and it works on the same logic: your history of paying things back determines what borrowing costs you later. Most people build one starting in college — through a student credit card, a car loan, or being added as an authorized user on a parent's card.
The mechanism is identical to what's happening to Oracle. A lower grade means a higher interest rate means a more expensive life. On a $30,000 car loan, the difference between good and mediocre credit can be thousands of dollars over the loan's life, for the exact same car. Nothing about the car changed. Only your grade did.
The other lesson is about the difference between having money and having cash. Alphabet reported its first quarter of negative free cash flow since going public, despite Google Cloud revenue growing 82%. A company can be wildly profitable on paper and still be spending faster than money comes in. So can a person.
Your credit score isn't a report card you get graded on once. It's the price tag on every dollar you'll ever borrow.
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Sources: Moody's Ratings research note, July 2026; CNBC and Forbes reporting, July 2026.