OpenAI shock: Oracle and CoreWeave collapsed, Softbank has its worst day in six months

Shares of AI-related companies - from cloud service providers to chipmakers - fell in the premarket on Tuesday, April 28, due to "shock around OpenAI," as Barron's described the situation. According to The Wall Street Journal's sources, the startup failed to meet its own targets for new user acquisition and revenue, raising concerns among management about the company's ability to meet its spending commitments. This has reinforced doubts about the sustainability of the current spending pace in a sector that supports a pool of players capitalizing on the artificial intelligence boom, CNBC writes.

Any negative news for OpenAI is bad news for Oracle, which has a five-year, $300 billion contract to provide computing power for the AI company, Barron's reminds us. This contract makes up a large part of Oracle's order book in the cloud business.

CoreWeave lost almost 8% of its value.

Chip makers were also under pressure: Nvidia shares fell by 3% on the premarket, Broadcom - by 4%, and Advanced Micro Devices securities collapsed by 5.2%. All of them have supply agreements with OpenAI. Ndivia invested $30 billion in the startup during the last round.

Shares of Japan's SoftBank Group, which is also a major investor in OpenAI, collapsed 9.9% in Tokyo trading, posting the biggest one-day percentage drop since November, MarketWatch calculated. SoftBank owns 11% of the startup and has also separately invested in data centers for the AI, making it essentially the purest bet on OpenAI's success or failure, MarketWatch noted. Bloomberg reported last week that SoftBank is seeking a $10 billion loan secured by its stake in the AI company.

Shares of OpenAI's key shareholder Microsoft fell 1% in the premarket.

Quotes of companies involved in the large-scale construction of AI infrastructure, including manufacturers of energy equipment and data center solutions, also fell. GE Vernova and Vertiv Holdings lost more than 2.5%, while Caterpillar shares fell by about 1.5%.

OpenAI, according to WSJ sources, has not met its internal goal of growing ChatGPT's audience to 1 billion weekly users by the end of 2025. Instead, the company experienced increased subscriber churn, the sources told the publication. In addition, ChatGPT's annual revenue goal was not realized: Google's Gemini model showed dramatic growth and took market share away from OpenAI, WSJ explains. The AI startup missed several monthly revenue targets after losing ground to rival Anthropic in the programming and enterprise markets, the newspaper's sources said.

Meanwhile, OpenAI has already committed about $600 billion in computing contracts. Separately, it expects that the $122 billion raised can be spent within three years if revenue plans are met, the WSJ writes.

OpenAI CFO Sarah Fryar told management that with revenue growth slowing down, the company may face difficulties in paying for future contracts, the newspaper reports. Against this background, the board of directors strengthened control over data center expenses and questioned further capacity expansion promoted by CEO Sam Altman.

More to the point, Fryar warned management and the board that OpenAI is not yet ready to meet the stringent reporting requirements for public companies. Altman, according to the publication's sources, favors a more aggressive timeline for the IPO.

Altman and Fryar told the WSJ in a joint statement, "We are completely united on the need to increase computing capacity and are working on it every day." Any suggestion of disagreement between them or a refusal to expand computing resources is "ridiculous," they said.

The increased focus on spending could limit Altman's ambitions ahead of OpenAI's IPO, which is expected to take place before the end of the year, the WSJ noted. Fryar and other executives are now looking to tighten spending controls and improve financial discipline, which at times has led to disagreements with the CEO, the Journal's sources said.

The WSJ's information "raises questions about whether the company can fulfill its massive infrastructure commitments," said trader Adam Crisafulli in a note cited by CNBC.

Perceptions of OpenAI's leadership began to shift as early as last fall, when Alphabet's Gemini and Anthropic's Claude models gained widespread acceptance, Bloomberg recalls. Their releases have repeatedly triggered selloffs in shares of companies considered a proxy for OpenAI, the agency points out.

"OpenAI's growth has been phenomenal since the release of ChatGPT, but competitors are overtaking it from both sides at once," states Anna McDonald, director of investment strategy at Hargreaves Lansdown.

"As we approach a potential IPO, OpenAI faces a confluence of risks that could make going public significantly more difficult: failure to meet internal targets, increased global competition and high-stakes litigation that could change the very structure of the company," MarketWatch quoted Christophe Barrault, head of trust and research at Lior Global Partners, as saying. The litigation in question is Elon Musk's lawsuit against OpenAI, which began in California on Monday, April 27.

Failure to meet revenue and user count targets "would affect the entire AI infrastructure ecosystem, with Oracle being the most vulnerable in terms of risks to its financial performance," according to Bloomberg Intelligence analyst Anurag Rana. Microsoft, Amazon and CoreWeave could also feel the impact if OpenAI decides to reduce its computing capacity needs, he added.

The timing of The Wall Street Journal's piece could be critical for markets entering the busiest period of the first-quarter reporting season, Barron's writes, with results from key hyperscalers - Microsoft, Amazon, Alphabet and Meta Platforms - expected in the next two days.

This article was AI-translated and verified by a human editor