TLDR
- Oracle stock surged 9.6% Monday after D.A. Davidson upgraded shares to Buy from Neutral with a $180 price target.
- OpenAI has around $40 billion cash on hand and may raise another $100 billion by end of quarter to pay for Oracle’s data center buildout.
- Oracle took in roughly $800 million in revenue from TikTok USA last year and now holds a 15% stake in the new entity.
- The stock has dropped 55% from its September record high of $328.33, now trading at $155.95.
- Oracle carries $130 billion in debt and $248 billion in operating-lease commitments that will weigh on finances for years.
Oracle stock posted its best single-day gain since September on Monday. Shares climbed 9.6% to $155.95.
The rally came after D.A. Davidson analyst Gil Luria upgraded the stock to Buy from Neutral. He maintained his $180 price target.
The upgrade centered on OpenAI’s improved financial position. Luria believes the AI company’s strengthened funding runway removes a major concern for Oracle investors.
“We believe OpenAI already has as much as $40B of cash on hand and may be raising as much as another $100B by the end of the quarter,” Luria wrote. This money should help pay for the data centers Oracle is building for OpenAI.
The market had been valuing Oracle’s OpenAI relationship negatively. Luria sees the potential fundraise as a catalyst for the stock to outperform.
Oracle’s shares are down 55% from their September record high of $328.33. That peak came after the company announced over $300 billion in new contract obligations.
The excitement faded when investors learned a single OpenAI contract accounted for most of that backlog. OpenAI doesn’t turn a profit.
OpenAI Partnership Takes Center Stage
D.A. Davidson now views OpenAI’s ability to pay Oracle more optimistically. The AI startup could secure up to $100 billion in fresh capital.
“We believe that a revamped OpenAI will return to its position as Google’s top challenger,” Luria wrote. With new funding, OpenAI should be able to meet its obligations to Oracle this year.
The analyst acknowledged past criticism of both companies. But he believes the market now properly reflects the risks involved.
Luria also pushed back on fears about AI disrupting software companies. “We believe companies will continue to pay for Oracle’s products and that they will not be vibe coded away,” he noted.
TikTok Deal Adds Revenue Stream
Oracle’s TikTok USA partnership offers another growth opportunity. The company holds a 15% stake in the new entity.
Oracle pulled in around $800 million in revenue from TikTok USA last year, according to D.A. Davidson estimates. The deal locks in TikTok USA as a cloud customer.
It also opens doors for deeper collaboration with parent company ByteDance. Oracle likely secured a favorable valuation too.
Vice President JD Vance said the U.S. version of the video app would be valued at $14 billion. That’s much lower than investor expectations.
Oracle faces substantial financial obligations. The company carries $130 billion in debt and $248 billion in operating-lease commitments.
“These will burden the company for years to come,” Luria warned. But if Oracle executes well, it has the partners and investments to manage these challenges.
Oracle reports its next earnings on March 9.
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