S&P 500 Slips 0.5%, Nasdaq Drops 0.9% as OpenAI Growth Concerns Trigger AI Pullback
By Martin Lam
Market Overview
On Tuesday, the S&P 500 index declined by 0.5%, closing at 7,139.24, while the Nasdaq Composite fell by 0.9% to 24,663.80. This downturn interrupted a recent streak of record highs, primarily driven by concerns regarding OpenAI's user and revenue targets, leading to profit-taking in AI-related stocks.
During the trading session, the S&P 500 experienced a drop of as much as 0.8% before recovering slightly, while the Nasdaq saw a more significant intraday decline of 1.5%. These losses reversed some of the gains made on Monday, which had pushed both indexes to all-time closing highs.
Key Market Movements
The S&P 500 closed down 35.82 points, trading within a range of 7,115.20 to 7,172.45. The Nasdaq Composite lost 224.21 points, with declining stocks outnumbering advancers by more than a 3-to-1 ratio on both indexes. The technology and communication services sectors were the hardest hit.
OpenAI's Performance Concerns
A report from the Wall Street Journal indicated that OpenAI, the artificial intelligence startup, failed to meet its internal targets for weekly active users and monthly revenue. Specifically, OpenAI did not achieve its goal of reaching one billion weekly active users for its ChatGPT bot by the end of 2025. Additionally, the company missed several monthly revenue targets earlier in the year. CFO Sarah Friar expressed concerns about the company's ability to fulfill future data center contracts if revenue growth does not accelerate.
This news prompted a sell-off in AI-linked stocks that had previously fueled the recent rallies in the S&P 500 and Nasdaq.
Stock Reactions
Several stocks reacted negatively to the news about OpenAI. Oracle (ORCL), OpenAI's largest cloud computing provider, saw a decline of 4.1%. CoreWeave (CRWV) dropped by 5.8%, and Nvidia (NVDA) ended its 18-session streak of daily gains with a lower close. Shares of SoftBank Group, which has made significant investments in OpenAI, fell by more than 7%.
Michael O’Rourke, chief market strategist at Jones Trading, noted that the report about OpenAI's missed targets was driving the day's market narrative and triggering profit-taking across the AI sector. The Philadelphia Semiconductor Index, which had seen a remarkable 47% rally over 18 consecutive days, also faced profit-taking.
In contrast, Microsoft (MSFT), a key partner of OpenAI, managed to reverse early losses and closed slightly higher.
Market Outlook
Looking ahead, traders are focused on three key factors that could influence the next moves for the S&P 500 and Nasdaq:
- Upcoming earnings reports from approximately 35% of S&P 500 companies, including major technology firms that will discuss their AI infrastructure spending plans.
- The Federal Reserve's policy decision expected on Wednesday, which is anticipated to maintain current interest rates.
- Further developments regarding OpenAI's financial situation, which could either prolong or alleviate the current selling pressure on AI-related stocks.