Overnight, OpenAI's revenue caused a broad pullback in AI stocks
- Core View: OpenAI's Q2 earnings report showed slowing revenue growth and widening losses, coupled with macro headwinds such as surging US Treasury yields, triggering indiscriminate selling in AI-related stocks, pushing the market into a repricing phase with heightened volatility.
- Key Factors:
- OpenAI's Q2 revenue grew 18% quarter-over-quarter to $6.7 billion, but operating losses widened from $9.3 billion to $12.3 billion, with cash burn outpacing revenue growth, raising concerns about the alignment between high valuations and growth.
- Memory chip and optical communications sectors led the decline, with SanDisk and SK Hynix falling over 9%, Micron dropping more than 7%, and Coherent and CoreWeave plunging over 12%, showing significantly amplified volatility in previously hot sectors amid negative news.
- On the macro front, the 30-year US Treasury yield climbed to around 5.3%, hitting a new high since 2007, raising corporate financing costs and putting pressure on tech companies that rely on debt to fund R&D.
- New Federal Reserve Chair Warsh made his first appearance at the Jackson Hole annual meeting, with the market hedging in advance on "hawkish" expectations; the expiration of the US-Iran ceasefire agreement pushed oil prices higher, reigniting inflation expectations and intensifying macro uncertainty.
- Contrarian View: Bank of America analyst Vivek Arya believes Nvidia's valuation is undervalued by 34%-50%, maintaining a "Buy" rating and a $350 price target, arguing that the market has over-priced the risks of the AI investment cycle.
- Market Dynamics Shift: While AI remains the main theme of US equities, the phase where "buying anything leads to gains" has ended, with capital rotating into defensive plays like Google and other established giants with stable cash flows.
Last night, AI trades suffered an indiscriminate sell-off.
The two leading narratives that had been driving gains recently—memory chips and optical communications—collapsed across the board overnight: SanDisk and SK Hynix fell over 9%, Micron dropped more than 7%, Coherent and CoreWeave plunged over 12%, Nebius fell more than 7%, and nearly all other companies with AI-related narratives also declined, with few spared.
The spark that ignited all of this was OpenAI's Q2 revenue.
1. OpenAI's Report Card: Growth Can't Keep Pace with Valuation
Data disclosed by OpenAI to investors for the second quarter showed quarterly revenue rose from $5.7 billion to $6.7 billion, an 18% increase quarter-over-quarter.
A single-quarter revenue figure of nearly $7 billion would be impressive for any startup. But OpenAI's situation is unique—carrying a sky-high valuation, with fundraising plans and IPO expectations lined up behind it, the market's demands have never been merely "decent," but "spectacular." The 18% quarter-over-quarter growth has led some investors to reassess the alignment between its growth and valuation.
What truly made the market frown was the loss side. Second-quarter operating losses expanded from $9.3 billion to $12.3 billion, with the rate of cash burn outpacing revenue growth. Since this metric includes stock-based compensation expenses, the company appears even further from its profitability targets, and investors have begun re-examining its financial trajectory ahead of a potential IPO.
One sentence sums up this report card: revenue is rising, but not fast enough; the hole is widening, and it's widening faster.
2. Macro Uncertainty
Beyond company-specific headwinds, the macro environment also shifted at the same time.
The first factor came from the bond market. The Treasury sell-off accelerated, pushing the 30-year yield to around 5.3%, the highest level since 2007. Treasury yields serve as the anchor for borrowing costs across the entire market—as the anchor rises, corporate bond interest expenses must follow, and companies relying on debt to fund R&D will face ever-increasing financial pressure.
The second factor came from macro expectations. This month's Jackson Hole global central bank symposium marks the first public appearance of new Fed Chair Kevin Warsh since taking office. Uncertain about his policy stance, the market has preemptively hedged in a "hawkish" direction. Additionally, the US-Iran ceasefire agreement happens to be expiring around the same time, oil prices have jumped in response, and inflation expectations have risen alongside.
3. The Nature of the Market Has Already Changed
Combining the company-specific and macro factors, the logic behind last night's decline becomes clear: the AI narrative remains a central theme in US equities in the short to medium term—no one denies that; but the phase where "buying anything makes money" is over.
The market's characteristics going forward will be distinctly different—high-profile sectors like memory chips and optical modules will see significantly amplified volatility in response to sudden news. A single financing headline, an earnings report with an unexpectedly large loss, or a bond auction with spiking yields could all trigger single-day swings of 10% or more.
For risk-averse capital, following Buffett's allocation approach and buying established giants like Google remains the safer option: solid cash flows, valuations that haven't been overextended, and AI investments that can directly connect to existing commercialization channels.
4. The Contrarian View: BofA Sees Nvidia Undervalued by Up to 50%
Notably, amidst the panic, some institutions are firmly bullish.
Bank of America analyst Vivek Arya stated in his latest research report that the market may be overestimating the risks facing the AI investment cycle, and Nvidia's valuation could be undervalued by 34% to 50%. He reiterated a "Buy" rating with a $350 price target.
Arya acknowledged that AI-related stocks are under pressure for good reason—investors remain concerned about slowing AI infrastructure investment, enterprise AI commercialization progress, and high valuation pressures. But BofA's assessment is that the market has overcorrected in pricing these risks. Nvidia continues to occupy a central position in AI computing infrastructure, with GPU product strength, software ecosystem moats, and deep collaboration with cloud providers collectively forming the foundation for its continued benefit from growing compute demand. Market skepticism about the sustainability of the AI cycle has actually obscured the company's long-term growth potential.
5. Final Thoughts
Last night's broad decline was, at its core, a re-weighing of the AI narrative by the market: OpenAI's books signal that cash burning is far from over, the 5.3% Treasury yield signals that capital is no longer cheap, and BofA's report signals that panic itself can also be mispriced.
These three forces will repeatedly contend in the coming market sessions, and volatility will become the norm. For investors, the AI train has indeed passed the stretch where you could ride it with your eyes closed.
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