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Oracle has reportedly scrapped a five-year deal that would have given China's Tencent access to advanced AI chips in data centers located in Asia. The deal was designed to work around export controls, which are rules that prevent certain high-end technology from being sold to specific countries for security reasons.
While losing a $7 billion contract is a setback, the bigger story is the increasing difficulty of doing business in China. Oracle has built its growth on being a specialized home for AI chips, but this cancellation shows that government pressure can quickly shut down large chunks of that international business.
Source: New York Post
Chubu Electric Power Grid has now deployed 10 million smart meters across Japan using Oracle's utility data management software. This system helps the utility handle the massive flow of data from these meters to better manage energy use and grid reliability. While a single utility contract rarely changes the outlook for a company as large as Oracle, this milestone proves the company's ability to handle massive, national-scale infrastructure projects. It shows that Oracle's software remains a standard for heavy industries that need to process huge amounts of data in real time.
Source: PRNewsWire
Stephens & Co. upgraded Oracle to its version of a buy rating. This move comes as the company works to turn its massive backlog of AI contracts into actual revenue by building out new data centers.
While the average analyst target for the stock sits at $230, the current price is much lower following a recent stretch of volatility. This upgrade suggests that some professional analysts see the current price as a good entry point given the high demand for Oracle's specialized AI cloud infrastructure.
Source: Stephens & Co.
Oracle priced its new stock offering at $116 per share, which is about 8 percent lower than where the stock was trading before the announcement. Along with the stock sale, the company is borrowing $10 billion through several sets of corporate bonds with interest rates ranging from 7 to 8 percent.
This is a massive amount of money to raise, but it matches the scale of Oracle's plan to spend $55 billion on data center expansion. While selling new shares dilutes current owners by spreading profits across more people, the company is betting that the returns from its record $664 billion contract backlog will far outweigh the cost of this capital.
Source: PRNewsWire
Oracle is moving forward with plans to raise $20 billion through a mix of new stock and debt. This follows the company's recent announcement that it needs to spend heavily to build the specialized data centers required to handle its record $664 billion contract backlog.
While this provides the cash needed to fuel growth, the stock portion of the raise will lead to dilution. Dilution happens when a company issues new shares, which reduces the portion of the business owned by existing shareholders. For long-term owners, the trade-off is whether the profits from these new AI data centers will eventually outweigh the fact that those profits are now being split across more shares.
Source: CNBC
Oracle has topped profit targets for five straight quarters, often by wide margins. Management is consistently under-promising while the shift to high-speed cloud services outruns their own public forecasts.
| Expectation | |
|---|---|
| EPS | $1.88 |
| Revenue | $21.33B |