Key Points:
- OpenAI missed its 1-billion-user goal, dragging down major tech and cloud computing stocks.
- President Donald Trump claimed Iran is in a state of collapse as the Strait of Hormuz remains closed.
- The Bank of Japan held its interest rate at 0.75% while warning about high oil prices.
- General Motors and Coca-Cola posted strong earnings, while UPS reported a 28% drop in profit.
Wall Street took a hit on Tuesday. At 11:37 ET, the S&P 500 dropped 0.78% to 7,118.05, and the tech-heavy Nasdaq 100 fell 1.34% to 26,939.44. The Dow Jones Industrial Average barely stayed in the green, edging up just 0.09%. Artificial intelligence stocks drove the market slide after reports surfaced about internal financial struggles at OpenAI.
OpenAI recently missed its internal targets for both revenue and new users. The company planned to reach 1 billion weekly active users for its ChatGPT bot by the end of 2025, but it failed to hit that mark. The startup also missed several monthly revenue goals earlier this year. Chief Financial Officer Sarah Friar warned other executives that slow revenue growth might stop the company from paying for future data center contracts.
Company board members are now looking closely at recent data center deals. They questioned Chief Executive Officer Sam Altman as he pushes to buy more computing power despite the dropping revenue. These financial worries come right as OpenAI prepares for an initial public offering later this year. Executives now want to cut costs and force strict business discipline across the startup.
The bad news dragged down several companies connected to OpenAI. Cloud computing provider Oracle lost more than 4% of its stock value, and CoreWeave dropped over 6%. Over in Japan, SoftBank Group slid almost 10% after committing massive investments to the AI company. However, some market watchers called the panic a mistake. Wedbush analyst Dan Ives called the stock selloff a massive overreaction and encouraged investors to buy shares of Oracle and other AI companies.
Meanwhile, global politics also shook the financial markets. President Donald Trump announced on Tuesday that Iranian leaders contacted the United States to say their country is in a state of collapse. Trump posted on social media that Iran desperately wants to reopen the Strait of Hormuz while they figure out their leadership situation.
The president recently rejected an Iranian peace proposal that would have reopened the waterway but delayed talks about Tehran building nuclear weapons. Trump made stopping Iran from getting a nuclear bomb a main goal of the joint military assault with Israel. Over the weekend, Trump even canceled plans to send his negotiators to Pakistan for new peace talks.
The Strait of Hormuz remains completely closed to shipping traffic. This narrow waterway usually handles about 20% of the world’s oil. The closure pushed global oil prices incredibly high and sparked fears of a massive inflation shock. Central banks around the world might have to raise interest rates if energy costs continue to push up the prices of everyday goods. Brent crude futures climbed again on Tuesday as the standoff continued.
The Bank of Japan kicked off a busy week for central banks. The bank kept its main interest rate steady at 0.75%. Three policymakers disagreed with the decision and voted to raise the rate to 1%, marking the highest number of dissenting votes since January 2016. Bank officials warned that high crude oil prices from the Middle East conflict will hurt corporate profits and squeeze family budgets across Japan.
Nine other central banks will announce their interest rate decisions later this week. The European Central Bank and the Federal Reserve will both meet. Experts expect the Federal Reserve to keep rates exactly where they are. This meeting will likely serve as the final policy move for Federal Reserve Chair Jerome Powell before former governor Kevin Warsh takes over the top job.
Investors are also prepared for the busiest week of the quarterly earnings season—about 35% of S&P 500 companies plan to report their financial results. Major technology giants will reveal exactly how much money they plan to spend on artificial intelligence infrastructure. These heavy spending plans recently helped protect the stock market from the stress of global conflicts.
Several large companies reported their earnings on Tuesday. General Motors raised its full-year profit outlook after the U.S. Supreme Court ended aggressive tariffs set by Trump, giving the carmaker a $500 million refund. Despite the good news, General Motors shares fell more than 2%. Coca-Cola stock jumped more than 6% after the company gave a bright forecast for the year. Kimberly-Clark gained 1.5% as its sales beat expectations. Finally, UPS stock dropped more than 4% after the shipping giant reported a 28% plunge in quarterly profit due to the loss of its Amazon delivery business.
