We had two big headlines yesterday — neither Trump-related, hallelujah — and these were:
- The WSJ reporting that OpenAI missed several monthly internal targets for new users and revenue, and
- The UAE is leaving OPEC.
It was hard to choose which one to start with, but here we go — I’ll start with the UAE news.
The UAE is leaving OPEC after six decades. They want to follow their own oil strategy, they don’t want to be constrained by OPEC production quotas, they have had disputes about this before with Saudi Arabia, and they felt that the current Middle East disruption was the right moment to take the step.
What’s important to know is that the UAE accounted for 12% of OPEC’s total production and will surely have an impact on the punch power of OPEC globally. OPEC accounted for about 35–40% of global market share; without the UAE, this share would drop to roughly 31–36%. It means that OPEC’s output restrictions would have a smaller impact on stabilizing global oil prices, and worse, the UAE’s departure could encourage other producers to pursue their national interests independently — meaning maximizing production to maximize revenue in a context where smaller overall production can’t provide enough support to oil prices to make the output-restriction strategy worthwhile. In short, higher competition and more supply will likely weigh on medium- to long-term oil prices once the Middle East dust settles and trade through the Strait of Hormuz is restored.
In the short run, however, given the massive disruption to oil flows through the Strait, the split will have little impact. The geopolitical tensions weigh much heavier. The oil market is undersupplied due to the near-complete halt of oil flows to global markets, and the UAE cannot bring barrels to market even if it wanted to. This is why oil prices rose yesterday. Both WTI and Brent crude traded past $105 per barrel, and longer-dated oil futures rose — though they rose less, hinting that the UAE news was indeed diluted by the highly tense geopolitical context.
Higher oil prices did not enthuse equity investors around the world, but the real hit to equity sentiment was the news that OpenAI missed internal targets on revenue and user growth, suggesting that revenue growth may not be enough to meet future — and lofty — computing contracts. In short, OpenAI may miss future payments if it cannot bring in enough money.
A startup missing targets could have been a minor issue for global financial markets, were it not sitting at the centre of a hundreds-of-billions-of-dollars AI ecosystem that includes the world’s biggest and most richly valued names. I think of Nvidia — down around 1.60% yesterday — AMD down 3.40%, Oracle down more than 4%, and SoftBank down nearly 10%. Microsoft, on the other hand, rebounded 1% after having announced a day earlier that it is loosening its ties with the company.
The reason OpenAI missed its targets is likely the emergence of Google’s Gemini and Anthropic’s Claude models, which have come to challenge OpenAI especially in the lucrative coding business — they simply took a share of OpenAI’s revenue. And indeed, since last October, Anthropic-related stocks have done notably better than OpenAI-related ones. The circles of course overlap, with some big companies sitting at the intersection of both, like Nvidia and AMD. But Google and Amazon, for example, have been strongly backing Anthropic, while Oracle and Microsoft were among the major names in the OpenAI circle.
So what’s next? While the OpenAI news impacted Google and Amazon less than it did companies heavily betting on OpenAI — looking at you, SoftBank — the risk of slowing revenue growth due to intense competition could, and probably will, become a headache for other AI players as well, since scaling is costly and competition is extremely intense. This should have a limited impact on chip and computing demand overall, but companies must navigate revenue potential and risks more carefully — because if OpenAI misses a payment, there will be a domino effect down the line. That is the worst-case scenario for the AI rally and could have global implications.
In any case, futures are in positive territory this morning, suggesting the market has absorbed the OpenAI news and decided to look past it.
The Federal Reserve (Fed) will be in focus today, along with earnings from Google, Microsoft, Meta, and Qualcomm due after the bell. US Big Tech is expected to report around 40% revenue growth for last quarter — slowing, but still strong. Beyond that, 80% of S&P 500 companies have beaten revenue expectations so far.
Across the Atlantic, the picture is more mixed. Barclays fell short of its US rivals in Q1 results, while BP gained around 1% after confirming that Middle East-driven volatility contributed to profit. But appetite for European equities is waning due to rising energy costs and deteriorating growth prospects. Meanwhile, 12-month inflation expectations for the euro area spiked to 4% — a rise that could encourage workers to demand higher wages and companies to pass additional costs on to clients, potentially starting a fresh inflation spiral that could oblige the European Central Bank (ECB) to tighten policy by hiking rates. The ECB is expected to hold when it announces its latest policy decision tomorrow. A benchmark 10-year euro area government yield is nonetheless painting a worrying picture. The EURUSD, meanwhile, remains under pressure despite the hawkish implications for the ECB, as the broadly stronger US dollar is weighing on the pair amid persistent geopolitical tensions and rising oil prices.
