Key Points
Oracle's shares may be oversold.
OpenAI and TikTok should help to fuel the cloud giant's growth.
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Shares of Oracle (NYSE: ORCL) climbed on Monday, following bullish analyst commentary.
By the close of trading, Oracle's stock price was up more than 9%.
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OpenAI fears may be overblown, according to this analyst
The sell-off in Oracle's shares is overdone. That's according to Davidson analyst Gil Luria, who upgraded his rating on the tech stock to a buy from neutral on Monday.
With Oracle's shares down more than 50% from its 52-week highs, Luria thinks that the risks relating to the enterprise software titan's deepening relationship with the rapidly expanding -- yet highly unprofitable -- OpenAI are now better reflected in its stock price.
Oracle's shares soared in September after it reported shocking growth in its cloud computing business. But most of the surge in Oracle's cloud project backlog stemmed from OpenAI's ravenous demand for computing power. When investors began questioning OpenAI's ability to afford its massive expansion plans, they also wondered whether Oracle's projected revenue and profit growth would materialize.
"In the past, we had been very critical of Oracle and OpenAI, but believe the market is now more appropriately reflecting the risks involved," Luria said.
Luria is now more confident in OpenAI's ability to fund its infrastructure buildout, at least in the near term. He says the AI model developer may already have as much as $40 in cash reserves, and its fundraising efforts could net it another $100 billion by the end of the first quarter.
TikTok could be a lucrative growth driver
Luria also noted that Oracle reached an agreement in January to acquire a 15% stake in TikTok's U.S. business. Luria believes the deal will help to cement the fast-growing social media app as a core cloud computing customer for Oracle.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
