A selloff in chipmakers weighed on stocks as speculation around OpenAI’s revenue revived worries that the artificial-intelligence spending spree is becoming harder to justify.
Tech shares led losses in the S&P 500 on reports that annualized revenue at the ChatGPT maker will be lower than some estimates for the firm. The Nasdaq 100 fell 1.4%. A gauge of chip giants sank 3.4%. Oil jumped, but settled below session highs as President Donald Trump said the US won’t attack Iran before the midterm elections. Treasuries rose on a solid sale of 30-year bonds.
OpenAI is on track to generate annualized revenue of roughly $50 billion based on its current performance, according to people familiar with the matter. Some outlets reported last month it was already on track to generate nearly $70 billion. The Financial Times earlier reported the new financial estimate.
Investors are questioning how long AI spending can last, especially as companies’ investment plans come under pressure because of rising borrowing costs.
“In other words, investors are becoming a bit skeptical about how long this huge AI spending can last with borrowing costs rising in a significant way,” said Matt Maley at Miller Tabak.
“We retain strong conviction in the AI growth story, and believe AI-related investment remains a powerful tailwind for the broader equity market,” Ulrike Hoffmann-Burchardi at UBS Chief Investment Office said in a recent note. “But the increasing concentration of market gains reinforces the importance of managing risk through a broadly diversified equity portfolio.”
This is particularly relevant to AI, where it is not yet clear how value creation will ultimately be distributed among chip designers, cloud providers, model developers, and application companies, she added.
“Ongoing questions over returns on investment, AI safety, financing, and execution could also contribute to periods of volatility, especially while elevated yields increase the cost of capital,” Hoffmann-Burchardi noted. “Diversification can help investors retain exposure to the structural opportunity without relying excessively on a narrow group of market leaders.”
Traders also kept an eye on the latest remarks from central bank officials.
Federal Reserve Governor Christopher Waller said rate hikes will likely be needed, though officials have some flexibility on timing and don’t need to tighten at consecutive policy meetings. Fed Bank of St. Louis President Alberto Musalem signaled rates should increase over the next six-to-nine months, but stopped short of endorsing a move at this month’s meeting.
Corporate Highlights:
- The Trump administration accused Microsoft Corp. · , Adobe Inc. and a half-dozen other companies of abusing a US worker visa program and suspended them indefinitely from a longstanding immigration initiative that’s served as a crucial talent pipeline for Silicon Valley and Wall Street.
- Oracle Corp. · is using a novel power strategy to keep several data centers on track: trucking natural gas directly to the server farms.
- Broadcom Inc. has held early discussions to arrange financing to help OpenAI purchase the custom AI chips the pair is developing together, according to people familiar with the matter.
- Alphabet Inc. · ’s Google announced a Gemini agent for the workplace, ramping up competition with OpenAI, Anthropic PBC and Microsoft Corp. for corporate customers.
- Starbucks Corp. said it was focused on its existing strategy in response to a news report that the coffee giant explored a takeover deal for Chipotle Mexican Grill Inc., the Wall Street Journal reported.
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What Bloomberg Strategists say...
“Contrary to popular belief that stocks have shrugged off higher rates, plenty of damage has already been done. Nowhere is the strain more visible than in small caps.”
—Tatiana Darie, Macro Strategist, Markets Live. For the full analysis, click here.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.5% as of 4 p.m. New York time
- The Nasdaq 100 fell 1.4%
- The Dow Jones Industrial Average rose 0.1%
- The MSCI World Index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.1214
- The British pound rose 0.1% to $1.3231
- The Japanese yen rose 0.1% to 157.86 per dollar
Cryptocurrencies
- Bitcoin fell 1.9% to $81,786.17
- Ether fell 4.2% to $2,466.13
Bonds
- The yield on 10-year Treasuries declined five basis points to 5.23%
- Germany’s 10-year yield advanced two basis points to 3.49%
- Britain’s 10-year yield advanced four basis points to 5.48%
Commodities
- West Texas Intermediate crude rose 3.2% to $91.07 a barrel
- Spot gold rose 0.5% to $4,132.21 an ounce