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U.S.-China TikTok Deal Is a Cash Flow Story for Oracle. Here’s Why.

Sep 17, 2025 08:38:00 -0400 by Martin Baccardax | #Technology

Oracle is likely to remain TikTok’s cloud computing provider. (Dreamstime)

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Oracle likely will remain the cloud computing provider for TikTok, the social media app run by China-based ByteDance, in a deal that provides an important plank of financial support as the tech giant ramps up spending on its artificial-intelligence-focused strategy.

The Wall Street Journal reported that Oracle, along with private-equity group Silver Lake and venture-capital firm Andreessen Horowitz, will own 80% of the U.S.-based operations of TikTok under the proposed deal, which could be concluded this week.

Cash flow from the agreement, estimated at between $480 million and $800 million a year, is likely to be crucial to the tech giant’s near-term financing challenges, which in turn are tied to its extraordinary growth over the past three years.

The stock has added more than $700 billion in market value since the autumn of 2022, shortly after it first began routing TikTok’s U.S. data through Project Texas, which was created to address concerns that TikTok’s user data would be collected and held by China-based entities. It effectively creates a firewall between TikTok’s U.S. operations and ByteDance.

The stock also had its best day since 1992 last week, rising 36% on Sept. 10, to an all-time high of $328.33, a day after Oracle forecast 77% revenue growth in its cloud infrastructure business.

Meeting that growth target, which also includes $144 billion in annual cloud infrastructure revenue by the end of the decade, won’t come cheap.

Oracle expects to spend around $35 billion in its current fiscal year, which ends in May, on equipment that will enhance the power and efficiency of existing data centers.

That should help with the faster conversion of its remaining performance obligations, or RPO, into actual revenue and profit. RPO, an industry term for booking backlogs, was pegged at a record $455 billion at the end of Oracle’s first quarter.

“The glaring negative with this spectacular growth is that Oracle needs to boost capital spending to satisfy the seemingly insatiable demand,” said Gimme Credit analyst Dave Novosel in a recent note assessing the company’s debt position.

Novosel sees the increase in capital spending, a 65% boost from year-ago levels, taking up around half of the group’s overall revenue. That likely means free cash flow for the current fiscal year will be in the region of negative $16 billion.

As a result, Novosel sees Oracle adding around $13 billion in new debt over the coming quarters, taking its total net position for the current fiscal year to around $95.2 billion.

However, that doesn’t mean the group’s leverage is likely to increase. In fact, Novosel sees the opposite.

“The hefty capital expenditures and negative free cash flow would normally be majorly concerning,” he said. “But the extraordinary earnings growth should more than offset future borrowing, leading to even lower leverage over the next couple of years.”

That said, another investor concern is the fact that nearly all of Oracle’s RPO gain likely was tied to a recently inked deal with ChatGPT creator OpenAI. The Wall Street Journal estimated the five-year agreement to be worth around $300 billion.

D.A. Davidson analyst Gil Luria argued in a recent client note that OpenAI would need to massively increase its own revenue, currently at around $12 billion a year, to around $300 billion a year by 2030 in order to comfortably commit to purchasing cloud and compute capacity from Oracle.

That could leave OpenAI looking instead to public debt markets to fund its plans, which could prove challenging.

“AI data centers will need to expand from the $10 billion lent to CoreWeave last year to hundreds of billions to fund the required capex for Oracle, CoreWeave, Crusoe, Lambda, Nebius and other neoclouds,” Luria said.

Oracle has a solid cash cushion of around $12 billion and appears to have found itself at the heart of the U.S. government’s AI and broader tech industry strategy. Ensuring a longer term deal with TikTok should provide even more assurance to investors should OpenAI’s fortunes wane over the next couple of years.

Write to Martin Baccardax at martin.baccardax@barrons.com