Oracle: TikTok Deal Secures Major Cash Flow but Does Little to Derisk the Data Center Buildout

Key Morningstar Metrics for Oracle

• Fair Value Estimate: $277.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Very High

Multiple media outlets, including the Associated Press, reported that ByteDance has reached an agreement with Oracle ORCL, Silver Lake, and Abu-Dhabi-based MGX to set up a joint venture for TikTok’s US operations. Oracle will hold a 15.0% stake in the new entity, while ByteDance will retain a 19.9% stake.

Why it matters: We reiterate our view that the deal’s main value is to keep TikTok as a major tenant for Oracle Cloud Infrastructure. Based on our estimates, TikTok contributed around $800 million (5%) of OCI’s fiscal 2025 revenue. This is critical cash flow that Oracle needs for capital expenditure.

• We don’t think the deal does much to derisk Oracle’s ambitious AI data center buildout plan. The primary AI component of hosting TikTok would be running the algorithm backing its “For You” page, which is a type of inferencing workload instead of a training workload.
• The possibility of ByteDance using OCI for AI model training is very low, in our view, because the firm itself operates a sophisticated cloud infrastructure service in China called Volcengine. The new TikTok US entity may use OCI to train its algorithm on US data, but the scope will be limited.

The bottom line: We maintain our $277 fair value estimate for Oracle, as the deal only confirms existing customer commitments and is unlikely to bring upside to Oracle’s cloud operations. Shares look attractive, but we also underline our Very High Uncertainty Rating for the firm.

• Oracle still needs to bank on customers like OpenAI to achieve its long-term revenue growth goals. While we are optimistic about long-term AI demand, Oracle’s stock will trade on any updates to its data center capacity ramp-up along the way, leading to elevated volatility.

Between the lines: It is not clear how Oracle will finance its stake in the joint venture, which we value at $2 billion-$8 billion. The stake itself will not bring Oracle positive cash flow, but the cash used to buy it can further hit Oracle’s balance sheet.