Nasdaq falls as report of OpenAI revenue shortfall hits tech stocks

OpenAI revenue report sparks tech sell-off

US technology stocks tumbled on Thursday after a report revealed OpenAI’s annualised revenue is significantly lower than previously expected, reigniting doubts over the heavy valuations driving the artificial intelligence boom.

The Nasdaq 100 index fell 1.9% and the S&P 500 lost 0.9% in afternoon trading in New York. The sell-off was triggered by a Financial Times report stating that ChatGPT-creator OpenAI’s annualised revenue was $20 billion lower than the figures it had previously indicated.

The news hit the broader semiconductor and tech sectors. The Philadelphia semiconductor index dropped 3.5% as investors questioned whether massive corporate spending on AI hardware will pay off. Even companies supporting the physical infrastructure of AI felt the pressure; Oracle shares fell following a Bloomberg report that it is resorting to transporting natural gas to power its data centres due to electricity grid bottlenecks.

Rates and energy fears add to market pressure

It was not just AI jitters affecting the market. Yields on 10-year US Treasuries climbed to 5.3%, making borrowing more expensive and hitting rate-sensitive tech stocks. Hawkish comments from Federal Reserve Governor Christopher Waller did not help. Waller said that more interest rate hikes will probably be required to bring inflation under control, although policymakers have flexibility on timing.

Energy supply anxieties also weighed on sentiment. Crude prices climbed following reports that the White House had requested military strike options against Iran from the Pentagon ahead of the upcoming US midterm elections. Meanwhile, Hurricane Isaias gathering strength in the Gulf of Mexico added to fears of oil production disruptions.

Wall Street's fear gauge, the Cboe Volatility Index, climbed above 16 as political uncertainty rises. Matt Miskin, a strategist at Manulife John Hancock Investments, noted that sectors like banking and industrials—which often rally under Republican policies—have weakened, suggesting investors may be pricing in a Democratic victory in the midterms.

Banks are also facing pressure as credit-card, auto-loan, and mortgage rates remain close to 20-year highs. Miskin noted that while higher yields can temporarily lift bank revenues, they can also push consumers to a tipping point where they simply cannot pay.

Mixed outlook for earnings season

This market wobble comes just as an important third-quarter earnings season begins. While Deutsche Bank strategists project tech megacap earnings to jump 54% on AI demand, recent results have been mixed. TSMC reported a 51% surge in sales, but Samsung's preliminary results missed the loftiest targets, showing just how high the bar has been set for AI investments.

Citigroup strategists Richard Schlatter and David Chew expect a larger share of US companies to beat third-quarter earnings forecasts than in the previous quarter. Their model projects that 66% of Russell 1000 companies will surpass estimates, up from slightly more than 60% in the second quarter. Technology companies are expected to deliver the most earnings beats, though the OpenAI news has raised the stakes for those upcoming reports.