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Oracle maintains buy stock rating amid TikTok risks

EditorNatashya Angelica
Published 04/22/2024, 12:31 PM
© Reuters.

On Monday, UBS reaffirmed its positive stance on Oracle Corporation shares (NYSE:ORCL), maintaining a Buy rating with a stock price target of $150.00. The firm's analysis focused on Oracle's role as the main cloud infrastructure provider for TikTok in the United States and the potential effects of a TikTok ban or divestiture.

The report was informed by a month-long investigation, including discussions with six industry sources familiar with both Oracle and TikTok's operations. The conclusion drawn was that a TikTok divestiture would likely have a neutral impact on Oracle, as a potential buyer would probably continue using Oracle Cloud Infrastructure (OCI) and honor the existing contract with TikTok, estimated to end between late 2025 and late 2026.

In the event of a TikTok ban, which could affect OCI growth as soon as the February 2025 quarter, the impact on Oracle was projected to be more significant. TikTok is presumed to be Oracle's largest OCI client, and its loss would undeniably be a setback. Nevertheless, the report suggests that the negative effects might be mitigated.

Oracle is expected to have the capability to repurpose the cloud capacity allocated for TikTok and address its substantial OCI backlog. Moreover, the financial impact may be lessened by the low-margin nature of the TikTok deal.

Despite the potential challenges posed by TikTok-related developments, UBS's assessment indicates that the current Oracle stock price reflects much of the associated risk, having declined by 11% over the past month. The firm's position suggests that the market has already adjusted for the uncertainty surrounding Oracle's future with TikTok.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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