Artificial Intelligence
Weekly Market Pulse
AI Stocks Sell Off as OpenAI Revenue Misses: Weekly Market Recap
The S&P 500 closed above 7,800 for the first time, then long-term yields climbed to their highest levels in more than two decades. Just as rates began to ease, a single revenue figure from a leading AI developer did what the bond market could not.
-Research by Yang Xin (辛旸)
-Written by Joyce Ann Macalintal
Market Overview
Equities spent the first half of the week looking past rising yields, only to be stopped by a demand-side headline in the AI sector. The 10-year Treasury yield closed at a 24-year high on Monday, and the 30-year touched its highest intraday level since 2002, yet the Nasdaq still closed at a record.
The S&P 500 followed on Tuesday with its first close above 7,800. Wednesday’s Federal Reserve minutes and a weak 10-year auction pushed long-term yields to fresh highs, and the major indices pulled back. By Thursday, rates had eased, but a report that a leading AI developer’s annualized revenue was well below market rumors triggered the week’s sharpest sell-off, concentrated in the AI infrastructure chain.
Sector Breakdown — Artificial Intelligence
The week opened on an unusual footing. September ISM Services came in slightly below expectations at 54.9, but its prices sub-index jumped to 74.0, the highest since mid-2022. Long-term yields rose in response, and still the Nasdaq closed at a record. The rally was being driven by the AI narrative and earnings-season optimism, not by lower rates.
Tuesday extended the advance, though with a narrower base. A modest decline in the 10-year yield helped, and optical-networking and semiconductor names rallied after a major chip designer raised its long-term targets at an investor day. Nuclear power names surged after a large technology company signed a multi-year agreement for new nuclear capacity. Beneath the record index, however, small caps declined, and small-cap biotech suffered sharp deleveraging-style selling, with a leading biotech ETF falling more than 3%.
That fragility showed on Wednesday. The September FOMC minutes indicated that most participants viewed one more rate increase this year as likely appropriate. A $39 billion 10-year auction cleared at 5.30%, the highest since late 2000. Long-term yields closed at their highest levels since mid-2002, and the Dow fell about three times as much as the Nasdaq.
Then Thursday changed the story. The 10-year yield actually fell, yet the Nasdaq dropped 1.25% and the Philadelphia Semiconductor Index fell 3.39%. Optical-communications names fell hardest, while energy and consumer staples led the S&P 500 higher and the Dow edged up. This was not a rates-driven decline.
Portfolio Company News
The week’s volatility ran on two tracks: the rate path and the AI demand narrative. For three days, the first dominated. Treasury yields repeatedly tested multi-decade highs, and market expectations for an October rate hike fell sharply, with traders instead pushing the hike risk out toward December. The minutes were hawkish in tone, but the market chose to read them as a delay rather than a threat.
The second track arrived late, and it mattered more. Reports said a leading AI developer told investors that its annualized revenue at the end of September was roughly $50 billion, against market rumors closer to $70 billion. The reaction was immediate and concentrated. Optical-component makers fell between 6% and 14%, and companies tied to compute orders and custom AI chips also sold off sharply.
What stood out was how decoupled the move was from the rate backdrop. With the 10-year yield down roughly 5 basis points on the day, the discount rate cannot explain the decline. Money rotated into defensive sectors instead, while the Dow held up and volatility rose only modestly, suggesting this was a targeted repricing of one narrative rather than broad risk aversion.
Why it matters: Earlier this year, most AI infrastructure pullbacks were macro-driven. Thursday’s decline was triggered by a demand-side data point, which is a different kind of risk. Whether it proves isolated or the start of a wider reset in AI spending expectations is the central question for the weeks ahead.
Key Catalysts / Events
Several names in our research universe generated significant news during the week.
A leading optical-components maker completed a $600 million at-the-market equity program, clearing a financing overhang. Its shares rallied for much of the week, then gave back sharply on Thursday as the AI sell-off hit the optical chain.
A major networking and semiconductor company raised its long-term revenue outlook at its investor day, and its shares rose more than 5% on the day, with analyst upgrades following. A global telecom equipment maker won a multi-year national research-network contract in Brazil, lifting its shares on Tuesday before they gave back gains in the following sessions.
In healthcare services, a large distributor and a private equity firm announced a roughly $5.8 billion agreement to acquire a home-infusion provider at a 37% premium, and its shares jumped by about a third. Elsewhere, an AI-drug-discovery company fell more than 10% after a broker downgrade, erasing a week of gains in a single session. A crypto-treasury company said it would stop buying Ether after reaching 5% of total supply, shifting the narrative from “continuous buying” to “buying stopped.”
On Thursday, a major technology company launched a new workplace AI agent, intensifying competition among enterprise software providers, while a large cloud-infrastructure company was reported to be seeking significant debt financing for its compute buildout.
Outlook / What to Watch
The first test comes quickly. September CPI is due on Wednesday, October 14, followed by PPI on Thursday, October 15, and the large banks open third-quarter earnings season on October 13 and 14. Markets currently price roughly an 82% chance of a hold at the October FOMC and about a 19% chance of a December increase, so a hot reading could reprice both the long end and AI valuations together. Note also that Monday is Columbus Day: the U.S. bond market is closed while equities trade, so thin liquidity may exaggerate early moves and should not be read as trend confirmation.
For AI infrastructure, the key question is whether Thursday was the first round of a longer repricing or a one-day shock. Historically, a single disproved narrative takes a few sessions to price fully, so the second-day reaction in the hardest-hit optical names is worth watching closely. We will also watch how enterprise software reacts to the new AI agent launch, since competitive-substitution fears may be priced quickly.
Market breadth remains the other signal. Small caps and biotech lagged even as indices hit records, and Thursday’s pullback was far larger in our AI-heavy research universe than in the headline indices. That divergence suggests the market is becoming more selective, rewarding visible demand while penalizing exposure to the theme alone.
The week leaves several narratives unresolved: long-term yields remain near 2002 highs, rate expectations have shifted again, and the AI investment cycle now faces its first clear question about revenue. The inflation prints will help show which of these forces is strong enough to define the next phase.
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