09.10.2026 - AI spook: The Fantasy Starts to Crack
The AI sector faced renewed pressure yesterday as OpenAI's reported revenue fell significantly short of expectations, raising fresh questions about the sustainability of extraordinary AI valuations.
OpenAI disclosed USD 50 billion in annualized revenue at the end of September, almost 30% below the previously reported USD 68 billion. The discrepancy reflects the inclusion of partner revenues in the earlier figure.
Despite continued growth of 77% overall and 107% in its enterprise business during Q3, the lower revenue figure has started to raise concerns about AI valuations and whether extraordinary growth expectations can be sustained.
OpenAI, seeking a valuation of more than USD 850 billion, has postponed its IPO until at least 2027.
Meanwhile, Anthropic is reportedly targeting a staggering USD 2 trillion valuation for its upcoming IPO, attracting criticism over excessive valuations and investment risks.
Adding to concerns, Nvidia-backed Australian AI company Firmus withdrew its planned IPO, citing market volatility.
The developments triggered a sell-off in AI-related stocks, including Nvidia, Oracle and CoreWeave, as investors began reassessing the sector's growth expectations.
Markets:
Equities: rebounding after yesterday’s decline
Bonds: yields moving higher again - US 2y yield above 4.79%, US 10y yield above 5.26%, Japan 10y yield 3.02%
Commodities: Oil prices trading sideways, WTI at USD 91/barrel and Brent around USD 103/barrel;
Precious metals rising, gold up to USD 4’180/oz, silver up above USD 60/ozCurrencies: US dollar slightly stronger - Japanese Yen slightly weaker USDJPY 158
Cryptos: rebound - Bitcoin around USD 82k
Volatility: The VIX index remains low above 15 (good opportunity for hedging!)
My View: For one day, the market appeared to change its narrative.
Yesterday, AI-related stocks slumped, and bond yields declined alongside them, despite sharply rising oil prices. This was particularly interesting given the market dynamics of recent weeks, when bond yields generally moved higher alongside oil prices.
One possible explanation is that investors began reassessing the extraordinary capital expenditure and debt-financing requirements of the AI industry. If the AI investment boom slows, corporate debt issuance could decline, reducing competition for capital and potentially easing upward pressure on Treasury yields.
At the same time, the US dollar remained relatively stable, suggesting that the move in yields was not primarily driven by a broad loss of confidence in US assets.
In other words, markets may briefly have started pricing in weaker growth, lower capital demand and potentially less pressure on interest rates, even as elevated oil prices continue to threaten the inflation outlook.
Today's rebound suggests that investors are not yet ready to abandon the AI trade. My view, however, remains unchanged: The AI investment cycle has moved far beyond sustainable levels.
Valuations have become extraordinarily stretched, supported by increasingly optimistic growth assumptions, massive capital expenditure commitments and, in my view, an extraordinary degree of FOMO, fear of missing out.
The warning signs are becoming increasingly difficult to ignore:
Extraordinary valuations that require exceptional growth for years to come.
Massive capital expenditure increasingly financed through debt.
Historically high financing costs, with US 10-year Treasury yields above 5%.
Revenue figures falling short of previously communicated expectations.
Growing concerns about the economic returns on unprecedented AI infrastructure investments.
Increasing energy constraints, with electricity supply and grid capacity becoming critical bottlenecks for data centre expansion.
Growing public opposition to new data centre construction, driven by concerns over energy consumption, electricity costs and environmental impact.
Increasingly crowded positioning, leaving investors vulnerable to a sudden reversal.
The combination of high valuations, rising debt, elevated interest rates and potentially disappointing revenue expectations is particularly dangerous.
The AI fantasy is starting to crack. The question is no longer simply how fast AI revenues can grow, but whether that growth can justify the enormous amounts of capital already committed and the valuations investors are willing to pay. I believe the gap between market expectations and economic reality has become dangerously wide.
If confidence in the AI investment cycle begins to unravel, the consequences will extend far beyond technology stocks. The sheer scale of AI-related investments, financing commitments and market concentration creates the potential for a much broader repricing of risk assets.
With equity markets near record highs, leverage elevated, bond yields above 5% and volatility remarkably low, investors appear to be pricing in an almost perfect outcome.
I believe the AI trade may be approaching a turning point. A disorderly unwinding could trigger one of the most severe equity market corrections since the Global Financial Crisis. The warning lights are flashing. Yet investors remain remarkably complacent.
I believe this may be one of the last opportunities for investors to reduce their exposure to risk assets before a potentially severe market correction unfolds.
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