OpenAI’s market domino effect: Here’s what you need to know

TODAY. >> WELCOME BACK. OPENAI'S ANNUALIZED REVENUE IN SEPTEMBER COMING IN BELOW EXPECTATIONS. KATE ROONEY JOINS US WITH MORE ON THE DOMINO EFFECT TO THE BROADER TECH SECTOR. KATE, WE TALKED ABOUT IT IN THE WAKE OF THE REPORT. WE HAVE HAD THE OVERNIGHT TO CHEW ON IT A BIT. >> CARL I LIKE THE AIR QUOTES. THAT'S RIGHT. SO THERE HAS BEEN A LOT OF ATTENTION AROUND AN ACCOUNTING DISCREPANCY AS IT WAS DESCRIBED IN OPENAI'S REVENUE NUMBERS. THE INITIAL HEADLINE SENT SHOCKWAVES THROUGH THE TECH SECTOR. IT PULLED DOWN SOME OF THE CHIP NAMES, THE NASDAQ AS WELL. THE HEADLINE THAT GOT EVERYONE'S ATTENTION. OPENAI'S REVENUE WAS ABOUT $20 BILLION LOWER THAN EXPECTED. THE FINANCIAL TIMES REPORTING ANNUALIZED REVENUE APPROACHING AROUND $50 BILLION AT THE END OF SEPTEMBER. THAT WAS COMPARED TO $70 BILLION. THAT WAS WIDELY REPORTED. I DID CONFIRM THOSE NUMBERS WITH A SOURCE. BUT IMPORTANTLY THE DISCREPANCY FROM WHAT I'M HEARING WAS MORE ABOUT ACCOUNTING THAN SLOWING DEMAND WHICH IS REALLY WHAT SPOOKED THE MARKET. OPENAI IN PREVIOUS PROJECTIONS HAD INCLUDED SALES. FROM WHAT I'M HEARING THROUGH CLOUD PARTNERS THINK OF AMAZON AND MICROSOFT IN NEW PITCH DECKS FOR ITS LATEST FUNDING ROUND. I'M NOW HEARING THEY ARE EXCLUDING CERTAIN PARTNERS FROM REVENUE. IT IS CONSIDERED A CLEANER NUMBER WHEN THEY GO OUT FOR THIS FUNDRAISE. IT IS PART OF A $30 BILLION ONGOING FUNDRAISE AT A $1.4 TRILLION VALUATION. ACCORDING TO SOURCES. THAT HAS BEEN GAINING MOMENTUM. FROM WHAT I'M HEARING NO TERM SHEET HAS BEEN SIGNED YET, BUT THESE AI COMPANIES ARE ALSO WIDELY USING ANNUALIZED REVENUE AND THEIR RUN RATES TO SHOW GROWTH RATHER THAN TRADITIONAL PUBLIC COMPANY METRICS, SO THAT CAN ALSO MAKE IT HARDER FOR INVESTORS TO GET A FULL PICTURE HERE. THE KNEE JERK REACTION FROM THE MARKET YESTERDAY WAS A REMINDER OF HOW DEPENDENT THIS ENTIRE AI TRADE IS RIGHT NOW ON THE GROWTH OF PRIVATE AI COMPANIES. SO ANY BREADCRUMB THAT REVENUE ISN'T KEEPING UP TENDS TO ADD TO THE BEAR CASE. AI COMPANIES COULD BE OVERBUILDING AND THEN THE DEMAND ISN'T THERE. ON TOP OF ALL THAT AND THE QUESTION AROUND CHIP DEMAND, A LOT OF THESE TECH NAMES ARE INVESTORS IN OPENAI AND ANTHROPIC. A LOT OF THE BIGGEST TECH NAMES AGAIN, HAVE A STAKE IN THESE GUYS. SO THAT ADDS TO THE WEAKNESS AND SORT OF THE KNEE JERK REACTION WE SAW. >> YEAH. AND THE, YOU KNOW, QUESTIONS AROUND CIRCULAR FINANCING GROWTH VERSUS OR SORRY, GROSS VERSUS NET REVENUE. SO MANY KIND OF ACCOUNTING QUESTIONS HERE AS WELL. IS THERE A SENSE THAT GOING PUBLIC WOULD BE A NET POSITIVE FOR CLEARING UP SOME OF THESE ISSUES? OR COULD IT ACTUALLY BE JUST EVEN MORE CONFUSING, GIVEN THAT THERE ISN'T QUITE THE SAME STANDARD OF ACCOUNTING AS THERE IS FOR OTHER OTHER COMPANIES THAT MAY BE GOING PUBLIC? >> YEAH. LESLIE THERE'S SORT OF TWO CAMPS IN THIS. THERE ARE THE FOLKS WHO SAY, GOSH, IF THEY JUST WENT PUBLIC, WE WOULD HAVE THIS ALL IN THE PUBLIC EYE. THEY WOULD HAVE TO REPORT QUARTERLY RESULTS. BUT I WAS TALKING TO A BANKER YESTERDAY WHO SAID, THIS IS ACTUALLY MAKING SOME INVESTORS NERVOUS BECAUSE FIRST OF ALL, YOU HAVE RATES GOING UP. A LOT OF THE BUILD OUT FOR AI HAS BEEN INCREASINGLY DEPENDENT ON DEBT. IF THESE COMPANIES AND THEIR IPOS DON'T GO WELL AND YOU ACTUALLY SEE WEAKNESS IN THE NUMBERS, THAT'S CAUSING JITTERS. SO I THINK THE FOLKS THAT WANT THESE COMPANIES TO GO PUBLIC ALSO WANT THEM TO GO PUBLIC AND HAVE THE RESULTS LOOK GOOD, TO PROP UP THE AI TRADE AND KEEP THE MOMENTUM GOING. THE OTHER SIDE OF THIS IS IF THEY DON'T GO PUBLIC, THEN YOU DON'T HAVE THE DOWNSIDE NECESSARILY. SO IF THEY'RE ABLE TO KIND OF KEEP THE NUMBERS BEHIND THE SCENES GROW IN PRIVATE, THEN YOU DON'T HAVE THE KNEE JERK REACTIONS. BUT THE PROBLEM RIGHT NOW IS THAT A LOT OF THIS IS BASED ON REPORTS BASED ON WHAT A LOT OF US HEAR FROM SOURCES, AND IT'S NOT FULL INFORMATION AND IT'S ANNUALIZED REVENUE, AS I SAID. SO IT'S SORT OF A MOMENT IN TIME EXTRAPOLATED OUT TRYING TO SHOW GROWTH. AND THAT'S MORE OF A VENTURE MINDSET VERSUS PUBLIC MARKETS. BUT I THINK WHAT'S UNIQUE ABOUT THESE COMPANIES, THEY'RE TRILLION DOLLAR PRIVATE COMPANIES AND THEY ARE SO TIED TO THE ENTIRE MARKET, NOT JUST THE TECH TRADE. YOU SAW THE HIT ON THE NASDAQ. IT TOOK THE S&P DOWN YESTERDAY. SO IT'S A GOOD REMINDER. >> YEAH NO IT'S SPOT ON. AND THE KIND OF UBIQUITY OF AI ARKO AS THAT METRIC IS BECAUSE THE GROWTH HAS BEEN SO STRONG THAT IT WAS INCOMPARABLE TO A LOT OF TYPICAL COMPANIES IN TERMS OF ITS GROWTH GROWTH RATE. AND THAT WAS SEEN AS A WAY TO FULLY CAPTURE THAT. BUT IT'S ALSO CREATED SOME CONFUSION TO YOUR POINT, BECAUSE IT'S NOT THESE ARE NOT KIND OF AUDITED FINANCIALS THAT ARE PUBLICLY DISCLOSED. THEY ARE KIND OF GAME OF TELEPHONE COMMUNICATED