Oracle’s stock experienced a notable surge of 7% on Friday, a positive reaction to its involvement in the formation of a joint venture to manage TikTok’s U.S. operations. This development marks a significant step for the cloud computing giant as it navigates the complex landscape of U.S.-China technology relations.
In an internal memo on Thursday, TikTok CEO Shou Zi Chew announced the establishment of a new entity that will oversee the social media platform’s presence in the United States. This venture includes a consortium of investors, with Oracle playing a pivotal role alongside private equity firm Silver Lake and Abu Dhabi-based MGX. The transaction is anticipated to be finalized by January 22nd.
This agreement provides a crucial lifeline for TikTok, averting a potential ban that loomed following President Joe Biden’s signing of legislation mandating the divestiture of the company’s U.S. assets due to national security apprehensions. The pathway to this resolution has been protracted, with former President Donald Trump having previously extended deadlines and issued executive orders that paved the way for ByteDance, TikTok’s China-based parent company, to explore divestiture options.
Under the terms of the new arrangement, Oracle will be entrusted with the critical task of auditing and validating TikTok’s adherence to the “agreed upon National Security Terms.” This responsibility underscores Oracle’s strategic positioning within the U.S. technology infrastructure. Furthermore, Oracle’s cloud computing centers will serve as the repository for sensitive U.S. user data, a move designed to address security concerns and ensure compliance.
While China has yet to issue an official public confirmation of the investment deal, reports emerging from Chinese state media indicate a favorable disposition towards the arrangement. Analysts, citing insights from Chinese state-run media, suggest that the deal aligns with the country’s regulatory framework and, importantly, does not involve the sale of TikTok’s core algorithm – a key point of contention in previous discussions.
From a financial perspective, the news has been met with optimism. Analysts at Evercore ISI characterized the development as a “nice win” for Oracle, highlighting its potential for upside. In a note to clients, they stated, “We continue to believe the recent pullback represents an interesting entry point for investors with a 6-12 month view.”
This positive market reaction comes at a time when Oracle has faced considerable scrutiny. The past year has been characterized by volatility for the cloud provider, with its shares experiencing a significant downturn in recent months. These declines were largely fueled by concerns surrounding the company’s substantial investments in artificial intelligence infrastructure and the associated funding strategies.
Earlier in the week, Oracle’s stock dipped following reports that negotiations for a potential $10 billion data center deal with Blue Owl Capital had stalled. This setback exacerbated existing anxieties about the ambitious, and potentially high-risk, capital expenditure plans dedicated to building out its AI data center capabilities. Despite these recent headwinds, Oracle’s stock has seen an 8% increase year-to-date, though it has experienced a pullback of over 20% in the last month. The TikTok deal could provide a much-needed catalyst to regain investor confidence and stabilize its market performance.
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