OpenAI revenue whiplash: Tech sours, then sweetens as yields and Oil keep the tension high

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.

Sweet and sour chicken – Italian style

Prep time: 20m

Cook time: 40m

Total time: 1h

Serves: 4-6

Ingredients

6 Thigns - Skin on, olive oil s&p

1 Diced Onion, chopped carrots, celery

6+ Garlic cloves

1/4 c Sugar

1 c Chianti

1/2 c Red Wine Vinegar

1/2 c Orange Juice w/pulp, sliced almonds.

Preparation

Step 1

Season the chicken pieces with s&p – set aside. 

Step 2

In a heavy frying pan – heat up some olive oil, - now brown the chicken on all sides.  Remove and place it on a platter.

Step 3

Now add the garlic, carrots, celery, and onion – sauté for 10 mins on med heat….

Step 4

Now add the sugar, wine, vinegar, orange juice, and almonds….bring to a boil  - add back the chicken – skin side up.  Place a lid off center and turn heat to simmer.  Cook for about 30 mins. 

Step 5

Now remove chicken and place on a platter.

Step 6

turn heat up to high and stir until it is nice and thick…not long…maybe like 4 mins max…..taste – adjust seasoning with s&p.  Spoon the sauce over the chicken pieces and serve.

Step 7

This dish works well with a green veggie – like French cut green beans or broccoli.  Make a large mixed green salad with tomatoes, red onion and cucumbers.  Dress in a balsamic Vinegar and Olive oil dressing.  Keep it simple – as the chicken and marinade carry the dish.