Bad news hit for tech company Oracle (NYSE:ORCL), as a hoped-for deal with xAI failed to coalesce. With the deal to supply servers to the artificial intelligence (AI) startup fronted by Elon Musk now out of the picture, that left investors on the back foot. Shares slid nearly 3% in the closing minutes of Tuesday’s trading session.
There’s actually a deal in place between the two already, but the discussions were to expand on it to provide more services. Reports noted that the current deal features Oracle renting out artificial intelligence chips to xAI, which were ultimately planned for use in an upcoming supercomputer. This would have been valued at around $10 billion if all went as hoped.
However, the new reports have xAI buying its own chips outright, which it will then use to build a data center. The early effort from xAI, Grok 2, trained on about 24,000 such chips from Oracle, but now the chips will come in from other sources. Musk himself noted that “…when our fate depends on being the fastest by far, we must have our own hands on the steering wheel, rather than be a backseat driver.”
Other Opportunities May Be in Play
While this is certainly a blow for Oracle, now is not the time to cry for it. New reports suggest that there may be new life ahead for Oracle after all. First, it no longer has much concern about TikTok issues, as it’s already bounced back from the issues that cropped up about a month ago. That recovery suggests that Oracle’s out of the woods on anything TikTok-related.
Meanwhile, Oracle picked up a new 10 million pound sterling contract from the Birmingham City Council following the “disastrous” implementation of Oracle’s enterprise resource planning (ERP) systems. Apparently, the implementation was so bad that the council failed to “…implement security and audit features in the software,” making any kind of fraud from April 2022 to September 2023 largely undetectable.
Is Oracle a Buy or Sell?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ORCL stock based on 14 Buys and 13 Holds assigned in the past three months, as indicated by the graphic below. After a 25.04% rally in its share price over the past year, the average ORCL price target of $149.35 per share implies 6.16% upside potential.
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