The Evolution of Credit Ratings: Who Holds AAA Status Today?
When making significant purchases, such as buying a home or a vehicle, your credit rating plays a critical role. A higher credit score typically leads to better lending terms, and lenders are more likely to compete for your business.
Credit ratings, however, don’t just matter for individuals. Rating agencies like Fitch, Moody’s, and Standard & Poor’s (S&P), which is part of S&P Global, analyze corporate and government debt to determine risk and creditworthiness.
Recent Downgrades for the U.S. Government
In August 2011, following the financial crisis, S&P downgraded the U.S. credit rating from AAA, its highest rating, to AA+, the next tier down. In August 2023, Fitch Ratings made a similar move, lowering the U.S. credit rating from AAA to AA+. While both AA+ ratings indicate a strong likelihood that the U.S. government can service its debts, they do not convey the same level of confidence as the previous AAA rating.
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The Shrinking Number of AAA-Rated Corporations
Much like the U.S. government, many corporations have seen their credit ratings decline over the past several decades. In 1980, around 60 publicly traded companies held the coveted AAA credit rating. Fast forward to today, and only two companies maintain this prestigious status.
Johnson & Johnson: A Healthcare Leader
The first company still holding a AAA credit rating is healthcare giant Johnson & Johnson (NYSE: JNJ). In April, S&P reaffirmed J&J’s AAA rating, but noted a negative outlook. The agency cited recent acquisitions—Abiomed, Laminar, and Shockwave Medical—that have raised the company’s long-term debt and adjusted net leverage beyond typical levels for a AAA-rated entity. Still, S&P highlighted J&J’s ability to reduce leverage in the future as a reason for maintaining the rating.
Additionally, ongoing litigation concerning its discontinued talcum-based baby powder poses uncertainties. Two previous settlement offers were rejected in court, leading to skepticism in financial markets.
Despite these challenges, J&J has a long-standing reputation for strong cash flow. The company has pivoted its focus toward its pharmaceutical segment, which boasts higher profit margins compared to its medical device and consumer health divisions, including its recent spin-off, Kenvue.
Moreover, J&J occupies a crucial space in medical technologies, poised to benefit as populations age and healthcare needs increase. Consistency in leadership is another strength, with only a handful of CEOs since its inception in 1886, enhancing the company’s execution of growth strategies.
Healthcare’s defensive nature also means demand remains stable, providing J&J predictable cash flow regardless of economic conditions.
Image source: Getty Images.
Microsoft: Another AAA Performer
The second AAA-rated company is tech titan Microsoft (NASDAQ: MSFT). In July, S&P reaffirmed its AAA rating for Microsoft, noting a “stable” outlook, suggesting the company isn’t facing immediate threats to its high credit standing.
Several factors contribute to Microsoft’s success, such as innovation, established business segments, and a robust balance sheet.
Future growth relies heavily on cloud services and artificial intelligence (AI). Integrating AI into its Azure platform, now the world’s second-largest cloud service provider, illustrates Microsoft’s innovative approach. Azure’s revenues have shown growth attributed to these advancements.
Legacy products, including Windows and Office, still contribute significantly to cash flow. While these segments may not experience the same growth they once did, they provide stable revenue that supports new investments in higher-growth areas.
As of June 30, in fiscal 2024, Microsoft held over $75 billion in cash and short-term investments, alongside more than $118 billion in operating cash flow. This financial strength empowers Microsoft to make moves that many competitors cannot, such as the nearly $69 billion acquisition of Activision Blizzard and substantial investments in OpenAI, creator of ChatGPT.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kenvue, Microsoft, Moody’s, and S&P Global. The Motley Fool recommends Johnson & Johnson and the following options: long January 2026 $13 calls on Kenvue, long January 2026 $395 calls on Microsoft, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
