Is Oracle Stock a Buy Ahead of TikTok USA Partnership?

Key Takeaways

• Oracle Corp. is set to secure a 15% stake in the new American entity of TikTok, following a deal to spin off the app’s U.S. operations.
• The deal addresses national security concerns and has the potential to unlock new revenue streams for Oracle in cloud infrastructure and data management.
• Oracle’s stock has dropped almost 50% from its September peak due to concerns about the company’s massive capital expenditures, particularly in AI.
• The company has ambitious targets, including revenue reaching $225 billion by fiscal 2030 and earnings per share reaching $21.
• Analysts forecast revenue to increase from $57.4 billion in fiscal 2025 to $227 billion in fiscal 2030, with adjusted earnings per share expanding from $6.03 to $20.50.

Introduction to Oracle’s Deal with TikTok
Oracle Corp. shares are positioned for a potential boost as a deal to spin off TikTok’s U.S. operations nears completion. The Chinese parent company ByteDance struck an agreement with a group of non-Chinese investors to create a U.S. TikTok, ending a six-year legal battle that threatened the app’s survival in America. The deal addresses national security concerns that Beijing could use the platform to surveil or manipulate its more than 200 million U.S. users. Oracle will join an investor consortium including MGX, an Emirati investment firm, Silver Lake, and Michael Dell’s personal investment entity, which collectively will own more than 80% of the new venture.

Oracle’s Stock Performance and Concerns
Oracle’s stock has dropped almost 50% from its September peak amid concerns about the company’s massive capital expenditures. Between fiscal 2026 and fiscal 2028 (ending in May), Oracle is projected to report a cumulative free cash outflow of over $55 billion. The core concern revolves around Oracle’s massive financial commitments to AI. The company raised $18 billion in debt recently to fund data center construction, pushing total debt above $100 billion. Oracle also joined the Stargate project with OpenAI and SoftBank, a $500 billion initiative to build AI infrastructure across the United States. These enormous capital requirements have sparked questions about whether the returns will justify the investment.

Oracle’s Ambitious Targets and Growth Prospects
Oracle management laid out ambitious targets at a recent analyst meeting: The company expects revenue to reach $225 billion by fiscal 2030, representing 31% annual growth over five years. Earnings per share should reach $21 during the same period, growing at a 28% annual rate. To put those numbers in perspective, Oracle would need to roughly quadruple both revenue and profits in just five years. Oracle secured $65 billion in new infrastructure deals during a single 30-day period last quarter. Its total remaining performance obligations exceed $500 billion, up by more than 200% year over year. Oracle’s strong backlog figures indicate strong demand even as analysts are concerned about the composition of that pipeline.

Analyst Forecasts and Stock Price Target
Analysts tracking ORCL stock forecast revenue to increase from $57.4 billion in fiscal 2025 to $227 billion in fiscal 2030. In this period, adjusted earnings per share are estimated to expand from $6.03 to $20.50. If ORCL stock is priced at 20 times earnings, it could more than double over the next three years. Out of the 41 analysts covering ORCL stock, 29 recommend "Strong Buy," one recommends "Moderate Buy," 10 recommend "Hold," and one recommends "Strong Sell." The average ORCL stock price target is $304, above the current price of $178. This suggests that analysts are bullish on Oracle’s prospects, despite concerns about the company’s massive capital expenditures.

Conclusion and Investment Implications
In conclusion, Oracle’s deal with TikTok has the potential to unlock new revenue streams for the company, and its ambitious targets suggest strong growth prospects. However, concerns about the company’s massive capital expenditures and debt levels need to be carefully considered by investors. With a strong backlog and bullish analyst forecasts, Oracle’s stock may be worth considering for investors looking for a potential long-term growth opportunity. However, it is essential to weigh the potential risks and rewards before making any investment decisions. As with any investment, it is crucial to conduct thorough research and consider multiple perspectives before adding Oracle’s stock to your portfolio.