Tech stocks drag Nasdaq lower on report of OpenAI revenue fall, high yields

Megacap technology stocks dragged US equity indexes lower as concerns grew that OpenAI’s revenue could disappoint investors already questioning the sustainability of the AI boom, Bloommberg reported.

The Financial Times reported that ChatGPT-maker OpenAI’s annualised revenue was $20 billion below the amount it had previously indicated.

The Nasdaq 100 fell 1.9%, while the S&P 500 declined 0.9% as of 1:26 p.m. in New York. The yield on the 10-year Treasury rose to 5.3%, weighing on rate-sensitive stocks as renewed energy-supply risks reinforced expectations that borrowing costs could remain high.


The Cboe Volatility Index, commonly known as Wall Street’s fear gauge, climbed above 16.

Technology and AI-related stocks came under pressure after several negative developments. Chip stocks too fell, with the Philadelphia semiconductor index dropping 3.5%.

Oracle shares also fell following a report that the company was transporting natural gas to data centres to overcome power-supply bottlenecks, as reported by Bloomberg.

Renewed concerns about global energy supplies further weakened market sentiment. Oil prices rose after a report said the White House had asked the Pentagon to prepare possible military-strike options against Iran that could be executed before the midterm elections.

Hurricane Isaias was also developing in the Gulf, adding to fears of potential disruptions to energy production and transportation.

Hawkish comments from Federal Reserve Governor Christopher Waller added to the pressure. Waller said further interest-rate increases would probably be required to bring inflation under control, although policymakers had flexibility over the timing and did not necessarily need to raise rates at consecutive meetings.

The final month of the US midterm campaign has also brought artificial-intelligence regulation and government spending on healthcare and defence into sharper focus for equity investors.

Election uncertainty is beginning to influence the market, according to Matt Miskin, a strategist at Manulife John Hancock Investments. He noted that banks and industrial companies—sectors that “typically do better under Republican policies”—had recently weakened.

That performance could indicate that investors are “pricing in a bit more of a blue wave,” he said.

Banks are also facing pressure as credit-card, auto-loan and mortgage rates remain close to 20-year highs. Miskin said lenders can benefit because “higher yields can lead to better revenues, but they can also lead to a tipping point where consumers just can’t pay these kinds of loans.”

Artificial intelligence remains critical to the outlook for the US earnings season. Deutsche Bank strategists expect third-quarter profits to grow 34% from a year earlier, a historically strong pace, with AI-related demand supporting earnings growth of about 54% among megacap technology companies.

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.

Investor responses to recent AI-related results have been mixed. Samsung reported record preliminary quarterly results, but they fell short of the most optimistic forecasts. TSMC, meanwhile, posted 51% sales growth.

The contrasting reactions underscore the high expectations surrounding AI as investors prepare for a US earnings season likely to be dominated by technology spending and demand.

Policy uncertainty is also increasing. An index tracking US economic-policy uncertainty has registered one of its sharpest increases in three years, even as overall market volatility remains relatively subdued.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)