Potholes and Potential Landmines to Watch on Wall Street
Here's my take on the war on Iran, private equity and OpenAI risks.
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The conflict with Iran hit its two-month anniversary yesterday. Peace negotiations appear to be going nowhere. Iranian leadership has stated it will not negotiate while the U.S. is still blockading its ports. Something the administration seems unlikely to do. JP Morgan stated recently that Iran has two to three weeks of storage capacity left before it will have to shut down production as it has nowhere to put the oil. This could permanently impact parts of these fields.
It feels like what we have here is the classical Mexican Standoff with the global economy paying the price. With three U.S. aircraft carrier groups within striking distance of Iran and with the clock ticking on the need to shut Iranian production, does this increase the chances of a breakthrough on the peace front? Or are hostilities about to start up again? The latter scenario certainly isn’t priced into the market, with equities selling right at record highs. Goldman Sachs took up its baseline projection for Q4 Brent oil prices to $90/barrel in Q4 this week. A sign that the inflation unleashed by this regional war is going to remain a headwind throughout 2026.
Related: Operation Major Blockade, Powell's Last Stand, UAE's OPEC Exit
If this conflict winds down in the months ahead, more investor attention will return to the struggling private credit markets. Major private credit funds have gated investor redemption requests in recent months, which has upended investor confidence in this sector. JP Morgan has marked down some loans to private credit and reduced credit lines as well. The sector is heavily exposed to the software industry, that continues to be hit by worries around the potential disruption from AI.
One risk I think investors have overlooked to this point around the recent saga around private credit is this: Over three fourths of private credit goes to finance private equity, or what used to be known as leveraged buyouts. And if private credit loans are starting to be marked down, what does this portend for private equity given this is lower in the capital stack? Not a connection that gets much ink in the financial press right now.
Finally, I am keeping a close eye on the news flow around OpenAI. This company is critical to the whole AI ecosystem with its $1.5 trillion in commitments for future computing power. The much-anticipated trial between OpenAI and Elon Musk commenced this week. In addition, the amended deal between Microsoft (MSFT) and OpenAI got plenty of ink this week.
Finally, the Wall Street Journal reported Tuesday that OpenAI has recently missed some of its internal targets for new users and revenue. The article also reported OpenAI's CFO has told other company leaders that OpenAI may not be able to pay for future computing contracts if revenue growth doesn’t ramp up and that board members are starting to scrutinize recent data center contracts. It should be noted that ChatGPT has lost significant market share against Gemini and other chat bots over the past year. The WSJ story helped trigger a more than 3% decline in the Philadelphia Semiconductor Index, which has been on fire throughout April.
My view is that OpenAI’s desire to go public is simply not going to happen in 2026. A recent funding round provided sufficient funds for near-term plans, but an investor has to keep an eye on these developments. OpenAI has been critical to the entire AI narrative since ChatGPT debuted in November 2022. If the company stumbles, it would likely take some air out of the AI bubble.
At the time of publication, Jensen had no position in any security mentioned.
