Why Oracle Rallied Yet Again Today

Key Points

• Nvidia just de-risked Oracle's massive backlog.

• A deal for TikTok USA could be coming into focus.

• Oracle also named two new co-CEOs.

• 10 stocks we like better than Oracle ›

Shares of Oracle (NYSE: ORCL) were taking off again today, rising 6.7% on Monday.

After revealing a massive increase in its cloud business earlier this month, Oracle was yet again in the news today in several ways.

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First, the company announced two co-CEO successors to current CEO Safra Catz, who announced she would be retiring soon. Second, Oracle appears to be on the brink of becoming a part owner of TikTok USA, per a pending deal between the U.S. and China.

But perhaps most important for the stock action today, the big customer behind Oracle's cloud backlog, OpenAI, received massive funding news.

OpenAI gets a cool $100 billion to fund its Oracle Cloud commitments

While one would think new CEO announcements and the acquisition of one of the most important social media platforms on the planet would be moving the stock today, it was probably the joint announcement between Nvidia (NASDAQ: NVDA) and OpenAI, in which Nvidia agreed to a $100 billion investment in OpenAI to fund the next 10 GW of artificial intelligence (AI) data centers, that got Oracle's stock moving.

Why would that affect Oracle? Well, earlier this month, Oracle disclosed a massive 359% increase in its cloud remaining performance obligations (RPO), which reached $455 billion. It was later reported that some $300 billion of that $455 billion was due to a five-year deal with OpenAI.

So the risk was if OpenAI, which is still losing billions of dollars, would be able to raise capital to spend on all that compute. However, today's backing from Nvidia seems to have mitigated that risk.

Additionally, details of a deal between the U.S. and China over the fate of social media app TikTok emerged in a Bloomberg article today. While TikTok USA will be sold to a consortium of investors, Oracle will provide security and oversee the re-creation of a new algorithm for U.S. users, and will store U.S. user data in Oracle's cloud.

While the financial terms of the deal are unclear, it appears Oracle will benefit financially from providing these services, along with its partial ownership of the company. All that being said, a deal isn't final yet, with the U.S. and China having another 90 days to finalize terms.

Finally, Oracle named two new co-CEOs today: Clay Magouyrk, who was president of Oracle's cloud infrastructure business, and Mike Sicilia, who was president of Oracle Industries. They will take over for outgoing CEO Safra Catz.

While the dual CEO role might seem a little messy, Oracle founder and Chairman Larry Ellison is still leading the company in significant ways. So, the CEO role isn't perhaps as consequential at Oracle as it is at other major companies.

Image source: Getty Images.

Oracle is becoming a big tech behemoth

Long an afterthought behind the "Magnificent Seven" stocks, Oracle is now on the brink of making a name for itself alongside these other illustrious companies. Its massive OpenAI cloud deal is set to make Oracle a veritable fourth cloud infrastructure giant, while its ownership of TikTok will give it a highly profitable consumer-facing business, which is something the enterprise-focused Oracle hasn't had before.

While its valuation may look stretched now, the benefits of AI accruing to just a few companies could make Oracle's stock worth the hefty valuation, even after this massive run.

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Billy Duberstein and/or his clients have no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Oracle. The Motley Fool has a disclosure policy.