The Nasdaq fell 1.25% on an OpenAI revenue report. The Dow still finished higher

Thursday's session split the market down the middle. The blue-chip Dow eked out a small gain, while the technology-heavy Nasdaq posted its steepest loss in days, dragged lower by a slump in semiconductor stocks. Oil jumped, Treasury yields fell, and a single newspaper report about one private company's revenue did more to set the tone than any economic data point.

At the close, the Dow Jones Industrial Average rose 51.77 points, or 0.10%, to 51,231.64. The S&P 500 lost 36.41 points, or 0.47%, to 7,765.36, and the Nasdaq Composite fell 345.35 points, or 1.25%, to 27,193.34. It was a second consecutive decline for both the S&P 500 and the Nasdaq, which set record closes earlier in the week and remain close to those highs.

The report that hit the AI trade

The pressure on technology came from a Financial Times report, published around midday, that OpenAI's annualized revenue was approaching $50 billion at the end of September. That is roughly $20 billion below the figure of nearly $70 billion that several outlets had reported late last month. According to the FT, the higher figure grew out of attempts by OpenAI's own investors to compare the company directly with Anthropic, which counts revenue sold through cloud partners in its annualized number. OpenAI does not.

A $50 billion run rate is still a large number, and OpenAI has told investors its revenue grew more than 70% over the period, Investing.com reported, citing the FT. But annualized revenue at the leading AI labs has become a shorthand for how much demand exists for AI computing, and that demand is what supports the spending plans of chipmakers, cloud providers and data-center builders.

Chipmakers, which have gained more than 80% so far this year, fell 3.4% on the day, according to Reuters. The PHLX Semiconductor Index closed down 3.39% at 12,623.72. Nvidia lost 2.9%, Advanced Micro Devices 3.9% and Micron Technology 4.8%. Among the 11 S&P 500 sectors, technology posted the steepest loss.

Oil climbed, then gave some back

Energy was the best-performing sector, helped by a sharp move in crude. Front-month West Texas Intermediate settled $3.21 higher at $91.49 a barrel, a gain of about 3.6%, and Brent rose 4.1%, Reuters reported. Attacks on shipping in the Strait of Hormuz and a cut in US output tied to hurricane activity in the Gulf of Mexico both fed the supply worries.

Prices rose further on reports that Washington had completed operational plans for potential strikes on Iran, with WTI reaching a session high of $93.20, according to Newsquawk. They pulled back after President Donald Trump posted on Truth Social that talks with Iran were productive and that the US would not attack Iran before the November midterm elections. Iran's foreign minister said Tehran would respond to a US proposal within days.

Higher oil prices are part of the inflation story the Federal Reserve is trying to manage. Reuters noted that tight supply during the Iran war has lifted US crude more than 60% this year, and that the Fed raised rates in September for the first time since July 2023.

Yields eased after a Fed governor and a bond sale

Treasury yields started the day higher and finished it lower. Fed Governor Christopher Waller, speaking in Istanbul, said he expects more rate increases. "If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2% goal," he said, while adding that the hikes "do not need to come at consecutive meetings." His remarks initially pushed yields up, and the 10-year traded near 5.32% in the morning, CNBC reported.

Two things reversed that move: Trump's post on Iran, which eased some of the oil-driven inflation worry, and the Treasury's $22 billion sale of 30-year bonds. The auction priced at a high yield of 5.618%, essentially in line with the 5.617% when-issued level just before the sale. The bid-to-cover ratio was 2.54, above the recent average of 2.41, and indirect bidders, a group that includes foreign central banks, took 72.32%. Dealers were left with 6.79%.

By the close of trading, the 10-year yield was around 5.23% and the 30-year around 5.60%, down roughly four and five basis points on the day. Both remain close to the multi-decade highs reached earlier this week.

Spot gold rose roughly 1% to about $4,140 an ounce, according to USAGOLD, as yields and the dollar pulled back.

What carries into Friday

Three threads are left open. The first is the AI trade: Thursday's selloff was a reaction to a reported number, not to earnings, and how chip stocks trade once the FT report has been digested will show whether it was a one-day repricing or the start of something larger.

The second is oil. Iran's response to the US proposal, any further attacks in Hormuz and the state of Gulf production after the hurricane all feed directly into crude, and crude feeds into inflation expectations.

The third is the Fed. In his speech, Waller said futures markets were pricing an 85% chance of at least one more hike by the December meeting. The next policy meeting is October 27-28, and the September consumer price index is due on October 14. With long-term yields still above 5%, the bond market remains the variable that the stock market is watching most closely.