Oracle (ORCL) has canceled a $7 billion agreement to lease advanced AI chips to Chinese technology giant Tencent (TCEHY), following pressure from the Trump administration. The move shows the growing legal hurdles for U.S. cloud providers working with Chinese AI companies. The news was first reported by The Financial Times, citing people familiar with the matter.
Oracle provides database software and cloud infrastructure solutions to businesses worldwide. The cancellation removes a potential source of revenue for Oracle's cloud infrastructure business. However, the financial impact is unclear, as the company has not disclosed the expected revenue or profit from the agreement.
Why Did Oracle Cancel the Tencent Deal?
Oracle had signed a five-year agreement with Tencent to provide access to as many as 100,000 advanced AI chips across multiple data centers in Southeast Asia.
The deal would have been Tencent's largest overseas chip-leasing agreement, giving it access to advanced processors unavailable for use in China because of U.S. and Chinese restrictions.
According to the report, U.S. officials approached Oracle to raise concerns about the agreement. Separately, senior officials in Guangdong, where Tencent is headquartered, reportedly urged the company to support domestic Chinese chipmakers. The agreement has since been canceled.
Chinese AI Firms Seek More Computing Power Abroad
Chinese technology companies have turned to overseas data centers amid limited domestic chip supply and tighter U.S. export controls. These arrangements provide access to advanced processors, including Nvidia's (NVDA) chips, which are restricted from entering China.
Chinese technology groups and leading AI laboratories have been using overseas computing resources, particularly to train AI models, as domestic chips are not yet capable of handling such workloads.
Cloud firms are also facing more pressure. On November 3, The Financial Times reported that Nvidia had instructed cloud computing clients to ensure that at least 51% of their services are sold to non-Chinese companies.
ByteDance and Alibaba (BABA) remain the largest clients of Southeast Asian data centers. Tencent has also been expanding its spending to strengthen its AI systems. Its latest Hunyuan models have shown solid improvements, closing the gap with top Chinese models such as Alibaba's Qwen.
Is ORCL Stock a Buy, Hold, or Sell?
On TipRanks, ORCL has a Strong Buy consensus rating based on 28 Buys, four Holds, and one Sell rating. The average Oracle price target of $242.50 implies 92.2% upside potential from current levels. Year-to-date, ORCL shares have dropped 39%.