OpenAI Revenue Warning Triggers Sharp Rotation Action
A report that OpenAI’s revenue is lower than expected hit AI leaders, and the rest of the market caught a bid.
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The day started sloppy, with heavy selling across the board, mainly in small caps and biotechnology. AI names held up better until a Financial Times report hit.
The Times reported that OpenAI recently told investors its annualized revenue is closer to $50 billion than $70 billion. OpenAI declined to comment. The gap from the nearly $70 billion figure reported in late September appears to stem from how sales through cloud partners are counted, not from an actual drop in sales. OpenAI excludes some revenue that Anthropic includes, which makes comparisons between the two difficult.
Investors have been looking to revenue growth at the AI labs to judge whether demand can support the enormous capital spending commitments being made to AI infrastructure. The AI trade rests on the simple logic that big profits will follow if the investments are made now. An accounting issue doesn’t change how much OpenAI is selling, but a $20 billion gap in the headline number raises doubts about whether that logic holds.
Seesaw in Action
The news caused a quick selloff in the Roundhill Magnificent Seven ETF (MAGS), chip stocks, data centers and other AI infrastructure names. At the same time, small caps and bonds bounced.
This is the dynamic I’ve been discussing recently. The AI buildout requires enormous capital, and it competes with government borrowing for the same pool of money. That has pushed interest rates higher, and higher rates have crushed stocks outside of AI. When the AI spending story takes a hit, pressure on bonds eases, and money that has been crowding into AI leaders starts looking elsewhere.
What surprised me was how sharp and immediate the relationship was. One headline, and the two tiers of this market moved in opposite directions almost at once.
Game Plan
One day isn’t a trend, and the AI leaders have shrugged off doubts many times this year. But Thursday’s moves show where the money is likely to go if questions about AI spending keep coming. It won’t take a collapse in the AI leaders to start closing the gap with the rest of the market. It only takes enough doubt to slow capital flows into them and give bonds some relief.
That is why I’m keeping my watch list of laggards current and staying patient with my cash. If earnings season raises more concerns about capital spending and profitability, the secondary stocks that have been starved for capital are the ones that stand to benefit. We’ll find out quickly whether this headline was the start of the gap closing or just a one-day reaction.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
