Dow Jones futures rebound as OpenAI sales outlook calms tech selloff
- US futures indices rebounded after OpenAI projected annual revenue to reach or exceed $70 billion by year-end.
- Wall Street closed mixed on Thursday following an earlier report that OpenAI fell $20 billion short of September revenue figures.
- Falling crude oil prices eased inflation fears, though elevated US Treasury yields continue to weigh on the broader outlook.
Dow Jones futures inch higher by 0.05% to trade near 51,520 during European hours on Friday. S&P 500 futures gain 0.33% to around 7,840, while Nasdaq 100 futures rise 0.82% to near 31,220.
US futures indices experienced a rebound as market sentiment recovered, driven by reports that OpenAI expects its annualized revenue to reach or exceed $70 billion by year-end. The upbeat projection helped ease investor concerns triggered by earlier reports indicating that the company's revenue had fallen $20 billion short of previously signaled levels.
The early optimism followed a mixed regular trading session on Wall Street on Thursday, where an initial, underwhelming revenue report from OpenAI led to a late-day selloff in technology and semiconductor stocks. Reports had suggested that OpenAI’s annualized revenue stood at $50 billion at the end of September, substantially below the widely circulated $68 billion figure reported the prior month. Consequently, the S&P 500 dropped 0.47%, and the Nasdaq Composite fell 1.25%, while the Dow Jones Industrial Average managed a modest 0.1% gain.
Adding to the dynamic backdrop, crude oil prices pulled back after US President Donald Trump stated that the US would refrain from military action against Iran ahead of the November midterm elections. Although lower energy costs helped alleviate immediate inflation anxieties, persistently high US Treasury yields continued to cast a shadow over the broader market outlook.
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
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