OpenAI Revenue Whiplash: Tech Sours, Then Sweetens as Yields and Oil Keep the Tension High – Try the Sweet and Sour Chicken

Things You Need to Know

As many of you know—I am a board member of the Headstrong Project, (https://theheadstrongproject.org) an organization that means a great deal to me. We help veterans living with PTSD get specialized treatment. Our best-in-class clinicians have treated more than 7500 veterans since 2012, providing more than 300,000 clinical hours. Today, we treat more than 1,500 veterans across the country monthly.

For my wife, Evelyn and me, this is a labor of love and gratitude. These men and women volunteered, stepped forward to serve our country. For some, coming home did not mean the struggle was over. They deserve care, compassion and the chance to heal—and they shouldn’t have to face that journey alone.

Next week, we gather for our annual NYC gala, where we hope to raise more than $6 million to continue this work. This year’s theme is “The Promises We Keep.”

That says it all. They kept their promise to us. Now it is our turn to keep our promise to them.

So I’m asking you to consider making a donation—$10, $20, $50…whatever is in your heart and within your means. Every gift helps us be there for a veteran who needs us.

You can use the link below to give. Thank you for helping us keep that promise to .help the hidden wounds of war

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With gratitude,

Kp

Stocks had another unsettled day as investors, traders and algos wrestled with all the usual suspects….rising oil prices, rising bond yields, the ongoing (never ending) conflict in the Middle East, the coming earnings season and of course the concerns over how much more spending will the AI revolution demand and support – and more importantly – when investors see real returns that justify those commitments.

What started out looking like a rough day became more mixed as the day wore on. The anxiety in the morning subsided (somewhat) but the risk is still simmering and that was made clear by looking at what happened to the Nasdaq.

The Dow gained 0.1%, the S&P gave back 0.5%, the Nasdaq slipped by 1.25%, the Russell ended the day flat, the Transports took back 1.5%, the Equal Weight S&P rose by 0.6% while the Mag 7 choked – losing 1%.

Of the 11 sectors – 8 ended the day higher – Consumer Staples up 2.1%, Energy +3%, Industrials, Financials, Consumer Discretionary, Communications, Basic Materials and Real Estate all gained less than 1%.

Utilities, Tech and Healthcare ended lower on the day.

Again, notice what that says…. yesterday’s selling was NOT indiscriminate – we saw much of the pressure in big tech – while the average S&P name gained ground – You can see that when you look at the Nasdaq vs. the Equal Weight S&P.

And here is why…..…There was a Financial Times story that questioned OpenAI’s revenue outlook that gave investors a reason to question the numbers behind the AI spending boom. The headline says it all –

‘Open AI Annualised Revenues $20b Less Than Previously Signaled’.

According to the reporting, OpenAI’s current revenue pace translates into roughly $50 billion a year – that is $20 billion BELOW what had been suggested in some earlier reports. Now—that means the reported revenue pace is lower than what the street and investors were led to believe.

And that raises an obvious question: If the revenue expectations were too optimistic, what does that say about the enormous spending that has been committed to the AI boom? Think chips, data centers, electricity, construction and financing. The industry has been committing enormous sums of money to build ‘the future’, so investors started questioning if (and when) the spending will translate into earnings and cash flow.

And so TECH took a hit – the chipmakers…the SOXX fell 3.3% – think names like NVDA -3%, AVGO -4.3%, AMD -3.9%, INTC -5.3%, TSM – 3%. Cybersecurity – 0.4%, Disruptive Tech – 0.8%, Software – 0.25%, Quantum – 2.3%, Memory names lost 5.3%, Data Centers got dragged down too – DTCR (data center ETF) lost 2%.

Now, it’s not like the AI story is suddenly blowing up – but the Financial Times story did cause investors (and the algo’s – do not discount their role in this) to start to question valuations again. Look, we can believe that AI is transforming the world and the economy, we can believe that demand will grow, but you have to still ask if it’s just too much – too much spending, too much borrowing, too much promising.

And with costs rising – the answers to those very questions matter even more – especially when everything is being priced for enormous growth. And remember this- 3^rd qtr earnings season is just days away….We discussed this…..

Now this morning – OpenAI is coming out of the gates fighting…Bloomberg is featuring a story that challenges the Financial Times story – and in fact the headline says it all –

‘OpenAI Expects $70 Billion in Annualized Revenue by End of 2026!’

Bloomberg reports that OpenAI expects to reach or exceed $70 billion in annualized revenue by year-end. And here is the distinction—the $50 billion figure discussed yesterday reflected its September revenue pace. The $70 billion figure is where it expects to be by December. So, it’s different dates and a different calculation….and so what do you think is happening? Tech is on FIRE this morning…. The SOXX etf is indicated up $10 or 2%. – so expect to see yesterdays move get erased today.

Ok so onto the bond market – which saw yields surge in the morning – sending the 10 yr to kiss 5.35% and the 30 yr to kiss 5.73% before slowly drifting back down as the morning wore on…. bond buyers seeing value – came in and started to scoop ‘em up – sending prices higher and yields lower…. and then the $22 billion 30 yr bond auction cleared at 5.618% and that gave the bond rally another push. ….the TLT and TLH both ended the day higher…up 1% and 0.7% respectively.

This morning the 10 yr is at 5.24% while the 30 yr is holding steady at 5.62%.

But don’t take an afternoon bond rally and declare the inflation battle over. Comments by two of the FOMC members is keeping rate hikes alive. Fed Governor Chrissy Waller suggested that additional rate hikes would likely be needed, although he said the Fed has flexibility on timing and does not need to move at consecutive meetings. St. Louis Fed President Alberto Musalem suggested higher rates over the next six to nine months. Neither suggested a rate hike at the end of the month. So while the timing remains open, the possibility of more tightening remains on the table.

And then the oil story didn’t get any better…News that a tanker attack in the Persian Gulf coupled with the brewing storm in the Gulf of Mexico pushed crude to $93.20 by 10 am….…. but then we heard that discussions with Iran were ‘productive’ and that plans to attack them were put on hold. At the end of the day – WTI still rose by 3.6% to settle at $91.49. This morning – WTI is down 60 cts at $90.90. Still too high.

Gold – caught a small bid – up $22 and ended the day at $4,133. This morning it is up $50 at $4,183 – but in the end – it remains in the $4,000/$4250 trading range. The next move will be determined by what happens in the bond market. If yields drift lower – gold will get bought and will test trendline resistance, if they push higher, gold will test trendline support. For now, it appears to be treading water.

Eco data today includes the U of Mich Sentiment survey – expected be down slightly….

DAL just reported and missed their numbers – $1.72 vs. $1.76 – and cut their 2026 forecast from $6.50/$7.50 to $5.10/$5.60 because of higher fuel prices. To combat that – they are raising fare prices…Surprise! DAL is down 4.3% in pre-mkt trading. It is about to test its long term trendline at $76…. The KEY will be if it holds.

European markets are all up about 1% this morning.

US futures are higher…. Dow futures +75, S&P’s +30, Nasdaq is +250 (yesterday’s weakness may have been a bit overdone?), while the Russell is +8.

The S&P closed at 7,765 – down 36 pts. Futures suggest a rally. We remain in the 7,680/7,800 trading range…. Let’s see what the talking heads say about the DAL report and the latest OpenAI story…..….

If you’d like to discuss your goals, evaluate the risk in your portfolio or simply get a second opinion, give me a call at 561-931-0190 or better yet – click on this link to connect. https://slatestone.com/contact-us/

I’m always happy to provide a complimentary portfolio review and risk assessment.

Take good care,

Kp

[email protected]

Source: Bloomberg, CNBC, Reuters, Wall Street Journal

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