On the 28th (local time), New York stocks fell across the board as news of weak results at OpenAI, a leader in the artificial intelligence (AI) industry, coincided with a surge in international oil prices driven by heightened geopolitical risks in the Middle East.
On the 28th at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average ended at 49,141.93, down 25.86 points (0.05%) from the previous transaction. The large-cap-focused Standard & Poor's (S&P) 500 fell 0.49% to 7,138.80, retreating from the prior day's record high. The tech-heavy Nasdaq composite also closed down 0.9% at 24,663.80. The small- and mid-cap-focused RUSSELL 2000 dropped 1.15%, underscoring overall market weakness.
The biggest drag on stocks was a bleak outlook surrounding OpenAI, the developer of ChatGPT. The Wall Street Journal (WSJ) reported that OpenAI recently failed to meet its self-set targets for new user acquisition and revenue growth. OpenAI Chief Financial Officer (CFO) Sarah Friar was said to have told the leadership that if revenue does not grow fast enough, the company may be unable to shoulder massive computing contract expense.
AI technology requires astronomical infrastructure investment expense, including large-scale data centers and expensive semiconductor chips, to handle advanced computation. The market reacted to the news that even OpenAI, the industry's frontrunner, had a warning light on profitability, suggesting the massive AI infrastructure investment wave that has led the rally could stall.
Core corporations in the AI ecosystem were hit hard. The VanEck Semiconductor ETF (SMH), which bundles semiconductor names central to AI infrastructure, slid more than 3% intraday. Shares of Nvidia, the world's top AI chip maker, fell more than 1%, while Broadcom and AMD each dropped around 4%. Oracle, a partner that signed a $300 billion large-scale cloud computing power supply deal with OpenAI, also fell more than 3%.
Dennis Palmer of Montis Financial said, "Even a small misstep related to artificial intelligence demand or capital expenditure could prompt a reassessment of the rally the market has shown over the past month." Palmer analyzed, "The most important question for investors is whether the AI train can continue to pull the market forward."
Investors took profits and showed caution ahead of a slate of major tech earnings this week. The giant tech companies that account for about one-quarter of the total market capitalization of the S&P 500 are set to report throughout the week. On the 29th, Alphabet, Google's parent, Amazon, Meta Platforms and Microsoft will release results, followed by Apple on the 30th. Stephen Kolano, chief investment officer (CIO) at Integrated Partners, said investors were cautiously locking in gains ahead of major tech earnings. Bloomberg also projected that lofty expectations for earnings from the seven major tech companies would cap stock gains.
A surge in international oil prices due to rising geopolitical tensions in the Middle East also weighed heavily on the market. West Texas Intermediate (WTI) futures jumped more than 3% to settle at $99.93 per barrel, briefly topping $100 intraday. Brent, the global benchmark, also closed up 2.8% at $111.26 per barrel.
The average price of regular gasoline in the United States climbed to $4.176 per gallon, the highest since Aug. 2022. Rising prices of energy and other commodities are a factor stoking overall inflation. The market expects such price instability to hinder the U.S. Central Bank, the Federal Reserve (Fed), from deciding to cut interest rates.