A constellation of artificial-intelligence stocks dropped after OpenAI reportedly failed to meet its sales and user targets, rekindling doubts that the hundreds of billions of dollars that big companies are plowing into the technology will deliver sufficient profits anytime soon.
Market Reaction
The report dragged down the stocks of companies that have cut investment and business deals with OpenAI, which helped unleash the stock-market's AI boom after the release of ChatGPT more than three years ago. Oracle Corp. and CoreWeave Inc., which have cloud-computing pacts with OpenAI, dropped four per cent and six per cent, respectively. Chipmakers Advanced Micro Devices Inc. and Nvidia Corp., both of which have ties to the company, also dipped.
Investor Concerns
The reported miss by OpenAI revived worries that have shadowed the stock market periodically for months as technology giants like Microsoft Corp., Meta Platforms Inc., Amazon.com Inc. and Alphabet Inc. invest heavily in AI and stocks have rallied on the back of it. Those investments — as they boosted the revenues of semiconductor, power and data-centre companies — have sown fears that tech stocks could come tumbling back down if the spending halts or windfall profits don't appear.
While those concerns were shunted aside after the Iran war sent stocks sliding, the Nasdaq 100 Index surged back to record highs this month after one its strongest advances in over a decade. The index dropped about 1.5 per cent Tuesday.
“What we’ve seen in this market is like the maximum reaction,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “We automatically price in the worst case scenario or the best case scenario.”
Internal Worries at OpenAI
OpenAI’s chief financial officer Sarah Friar has told leaders internally that she is worried the firm might not be able to pay for future computing contracts if revenue doesn’t grow fast enough, the Wall Street Journal reported, citing people familiar with the matter. An OpenAI spokesperson said the company is “firing on all cylinders” and seeing strong growth in demand from enterprise customers and for its nascent advertising business.
While OpenAI had an early advantage in the AI business, competition has been fierce, with upstart rivals like Anthropic making major headway.
Broader Implications
The stock price moves on Tuesday weren’t outsized by recent standards. But the report comes ahead of earnings reports from big tech companies like Alphabet, Microsoft, Meta and Amazon.com, all of which will provide an update on AI rollouts.
“There’s still a fair bit of nervousness around the exposure of the entire chip and data centre and software supply chain to the big players,” said JoAnne Feeney, a portfolio manager at Advisors Capital Management. “Any bit of news that comes out is going to make people pause and reassess and wonder at the risks they may not have been considering.”
Bloomberg Intelligence analyst Anurag Rana said OpenAI’s struggles could “have an impact throughout the entire AI infrastructure ecosystem, with Oracle as the most exposed in terms of risk to its financial goals.”
