OpenAI's Darkest Week: Apple Lawsuit, Oracle Downgrade, AI Price War

Original Authors: Scott Galloway & Ed Elson

Original Translation: TechFlow

Introduction: Apple suing, Oracle credit rating downgraded, price wars erupting — OpenAI is having its worst week ever. Worse still, if all these risks materialize, its 2030 revenue forecast could plummet by 70%, and its cash flow loss would reach $165 billion. Could this AI giant, valued at hundreds of billions of dollars, become the biggest tech bubble in history?

Here's Why OpenAI Might Miss 70% of Its 2030 Revenue Forecast

It's been another terrible week for OpenAI. The company was reportedly selling advanced AI models to Chinese companies on the Pentagon's blacklist. Its first AI device was leaked (reportedly a movable speaker). And according to the latest predictions from Emarketer, OpenAI's advertising business could be 95% smaller than its own forecasts.

That's not all. Apple sued OpenAI last week, accusing its consumer hardware plans of being the product of intellectual property theft. S&P Global Ratings also downgraded Oracle's debt to BBB-, just one notch above junk status, citing OpenAI as a "key credit risk." Additionally, DeepSeek is reportedly preparing for an IPO, potentially filing an application as early as this year. A successful IPO for a cheaper Chinese AI model provider could make it harder for OpenAI and Anthropic to attract funding.

Taken together, these issues raise serious questions about OpenAI's ability to meet its revenue forecasts and fulfill its contractual obligations worth hundreds of billions of dollars with computing power suppliers and chip companies.

First, Apple's lawsuit could bring OpenAI's entire hardware business to a standstill. Apple alleges that OpenAI poached over 400 Apple employees, extracted confidential information from them, and then induced Apple's suppliers to perform proprietary work for OpenAI without authorization. Apple is seeking monetary damages and a court order requiring OpenAI to return or destroy all stolen property.

Second, the AI price war is already underway, with Chinese companies like DeepSeek posing the biggest threat. Open-source Chinese models now account for nearly 50% of enterprise token usage on OpenRouter, an AI model marketplace. In the first half of 2025, that figure was only 4.5%.

In response, U.S. companies are slashing prices. Last week, Meta announced the launch of its new model, Muse Spark 1.1, which is 75% cheaper than offerings from OpenAI and Anthropic. Under industry pressure, OpenAI released a model that is 80% cheaper than its own premium offerings.

In the worst-case scenario, if the Apple lawsuit shuts down OpenAI's hardware business, ChatGPT's ad revenue underperforms as EMarketer predicts, and the price war forces OpenAI to reduce model pricing by 80%, then OpenAI's 2026 revenue could fall by 40%, and its 2030 revenue could drop by 70%.

For a company that, even in an ideal scenario, would only cover about 80% of its cash burn by 2030, this situation would be catastrophic.

It would also impact when OpenAI becomes cash flow positive. According to internal projections, OpenAI expects to turn cash flow positive in 2030. However, in this downside scenario, it would instead post a loss of $165 billion that year.

OpenAI CEO Sam Altman tried to soothe investor concerns with a tweet, but his statement ultimately just promised to "do the right thing." Whatever that means.

The best business model in history is stealing intellectual property. The second best: offering 80% of a product's value at half the price. This is exactly what DeepSeek and other Chinese open-weight models are now trying to do.

The U.S. has placed a huge bet on AI, and China has just produced a near-frontier product for a fraction of the cost. Once Trump figures out what's happened, this will become the next geopolitical football.

The Market Hasn't Broadened — It's Just Getting Better at Hiding AI

Investors keep hearing that the stock market is broadening. But is it really? The deeper you look, the harder it is to argue that stocks, bonds, and even alternative assets aren't currently one big bet on AI.

This pattern is most obvious in the stock market. AI-related stocks account for over 50% of the S&P 500 by weight. If you strip out AI and energy from the S&P 500 this year, the index would be negative.

AI is the hidden catalyst driving returns in seemingly unrelated sectors. For example, 3 of the top 4 best-performing companies in the S&P 500 Real Estate sector are Real Estate Investment Trusts (REITs) focused on developing AI data centers.

Utility companies are benefiting from surging electricity demand driven by AI. U.S. electricity demand jumped to an all-time high last year, with data centers accounting for about 50% of the increase.

Industrial stocks are soaring due to construction demand for building AI data centers. In fact, for the first time since 2021, the forward P/E ratio of S&P 500 Industrial stocks (26x) is higher than that of Technology stocks (24x).

The Financial sector is also leaning on AI. Big banks are collecting record fees from AI company IPOs and M&A activity, as well as record trading revenues from the market hype surrounding AI. The Financial Times' Robert Armstrong even wrote, "It's not an exaggeration to say big banks are now direct AI investment vehicles."

Even in the Russell 2000 small-cap index, 52% of its returns in the first half of this year came from AI-related companies.

Emerging markets are no exception. South Korea and Taiwan account for 75% of emerging market returns, and most of these gains come from three AI semiconductor chip suppliers: TSMC, Samsung, and SK Hynix.

In Europe, just nine AI winners account for approximately 47% of the Stoxx Europe 600's returns this year.

Apollo Chief Economist Torsten Slok succinctly articulated the implication of this dependence: "This AI thing better work."

Real Estate Investment Trusts (REITs) are companies that own, operate, or finance real estate — apartment buildings, hotels, or increasingly, data centers. Many REITs are publicly traded like stocks, so buying a share means buying into a professionally managed real estate portfolio. REITs are required to distribute at least 90% of their annual taxable income to shareholders as dividends.

The experts on CNBC hold stocks, so they will always find reasons why others should buy more stocks. But don't be fooled: the market hasn't broadened; it's just found new ways to buy Nvidia.

Everything is becoming an AI stock. This isn't necessarily bearish, but investors are deluding themselves by calling it "broadening," as if it implies diversification away from AI. It doesn't. Buying "AI-adjacent stocks" and calling it broadening is like ordering a Double-Double with a Diet Coke at In-N-Out. Let's be clear: you still bought a cheeseburger.

Among the big tech companies, who is least dependent on AI? Apple. Apple's stock is up 60% over the past year, surpassing Nvidia again to become the world's most valuable company. Amazon, still AI-related but more diversified than other hyperscale cloud providers, is up 11% over the past year. Microsoft, the epicenter of AI, is down 23%.

If I could go long a basket of stocks, it would be GLP-1s. If I could short one, it would be AI. But to be clear: I'm not telling you to hold gold bars or cash. I'm always in markets — you never know how fast or irrationally they can run. But you should understand how much real exposure the market has to a single sector.

I'm a huge fan of index funds and passive investing: put the money in and let the market do the work. But now we have to ask what true diversification really means. Throwing your money into the S&P 500 no longer does that job, which means you have to start doing some homework.

The question is: can you find sectors truly away from AI?

I'll point to one: Healthcare. It's one of my picks for the year, and I'm sticking with it. AI hasn't touched it yet — meaning the real returns might still lie ahead. But finding these sectors is the puzzle investors face now.

Netflix Engagement Declines, Competitive Pressure Mounts

Netflix reported disappointing second-quarter earnings. With revenue growing 13%, missing expectations, the streaming giant released weak engagement data and subsequently announced it would reduce the frequency of publishing engagement metrics, unsettling investors. The stock fell up to 8% on Friday.

Netflix once boasted about its transparency; now, that claim seems rather ironic. In the first quarter of 2025, Netflix stopped reporting quarterly subscriber numbers, telling investors to focus on engagement. Last week, the company decided to reduce its "What We Watched" engagement report from twice a year to once a year starting in 2027.

The final semi-annual engagement report looked weak. Total viewing hours grew by only 2%, while the subscriber base was estimated to have grown by 10%, implying an 8% decline in daily engagement per subscriber.

Netflix has been facing increasingly intense competition from short-form video providers, particularly YouTube. In response, it has added "Clips," a TikTok-style scrolling feature that surfaces short content from its own library, struck video podcast deals with Spotify and Barstool, and signed new licensing agreements with external publishers (BuzzFeed, Condé Nast) to bring new short-form video content onto the platform.

Netflix has lost over $250 billion in market value in the past year, and fellow streaming giant Disney has lost nearly $50 billion. Both are well-managed companies with growing revenue, subscribers, and prices — yet they are being penalized for it. This raises an important question: Is streaming just a bad business? Or have Netflix and Disney run out of creativity? Tell us your thoughts in the comments.

Over the next six months, OpenAI will acquire enterprise AI company Sierra and appoint Bret Taylor as CEO. Sam Altman will be promoted to Chairman. Altman is an innovator, not an operator, and Bret Taylor might be the best enterprise software operator of his generation.