U.S. equities ended last week higher as Treasury yields stabilized, with the 10-year briefly hitting 5.35%, a two-decade high, before settling near 5.24%. Dovish Fed minutes pushed back on another hike, cutting market-implied October hike odds from nearly 70% to below 20%, though December remains at 72%. However, oil and AI concerns were headwinds. Brent rose to nearly $105 on Iran tensions and hurricane risk, and we believe an elevated risk premium may persist even if tensions ease. AI-related stocks also came under pressure after reports that OpenAI’s revenue expectations may be lower than anticipated. We head into 3Q earnings season with fundamentals supportive. FactSet expects S&P 500 earnings growth of 29.6%, up from 26.7% at the end of June. However, growth remains concentrated in energy (+121.1%) and technology (+65.1%), the latter led by semiconductors (+130%). The key questions are the sustainability of AI capex and whether earnings can broaden. A durable broadening will likely require lower oil prices, softer inflation, or a stronger labor market. The next test is Wednesday’s September CPI, with headline expected at 0.55% mom (3.6% yoy) and core at 0.18% mom (2.5% yoy).
Confusion Grips Markets due to OpenAI Metrics
Confusion took hold in markets last week as financial reports emerged suggesting OpenAI’s revenue run rate came in lighter than previously estimated. Revenue run rate (RRR) continues to be a key financial metric for the likes of OpenAI and Anthropic, with the metric taking revenue from a short time period, such as a month or a quarter, and then annualizing that revenue for the 12 months ahead. RRR remains an important metric for these two AI labs because neither is currently profitable, which makes traditional valuation metrics largely irrelevant; however, both firms have discretion over how they calculate their own RRR, making comparison tricky. The key difference is that Anthropic takes the gross amount when purchases are made through cloud partners (reporting RRR of $65 billion as of July), while OpenAI counts only the net amount it receives, naturally making OpenAI’s figures more conservative. This confusion sprouted when financial reports set the expectations that OpenAI’s RRR would reach $70 billion by September of this year, but reports then indicated that, using OpenAI’s methodology, RRR ending September would reach about $50 billion and $70 billion in December, sparking concerns that AI demand may have been overstated and particularly hitting the chip sector, pulling back by 3.4% on the day. The market’s nerves eased after reporting clarified that the initial $70 billion estimate was made in an attempt to use Anthropic’s methodology rather than OpenAI’s, so an apples-to-apples comparison was not set in the expectations, but still, it comes at a crucial time when OpenAI aims to raise $30 billion in private funding, which would set its valuation at $1.4 trillion. Clarity on the financials will come once both firms go public over the next year or so, but for now, watching RRR remains important for understanding how enterprise adoption of OpenAI’s Codex and Anthropic’s Claude Code is developing, and when we can expect AI adopters to reap productivity gains.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
U.S. equities ended last week higher as Treasury yields stabilized, with the 10-year briefly hitting 5.35%, a two-decade high, before settling near 5.24%. Dovish Fed minutes pushed back on another hike, cutting market-implied October hike odds from nearly 70% to below 20%, though December remains at 72%. However, oil and AI concerns were headwinds. Brent rose to nearly $105 on Iran tensions and hurricane risk, and we believe an elevated risk premium may persist even if tensions ease. AI-related stocks also came under pressure after reports that OpenAI’s revenue expectations may be lower than anticipated. We head into 3Q earnings season with fundamentals supportive. FactSet expects S&P 500 earnings growth of 29.6%, up from 26.7% at the end of June. However, growth remains concentrated in energy (+121.1%) and technology (+65.1%), the latter led by semiconductors (+130%). The key questions are the sustainability of AI capex and whether earnings can broaden. A durable broadening will likely require lower oil prices, softer inflation, or a stronger labor market. The next test is Wednesday’s September CPI, with headline expected at 0.55% mom (3.6% yoy) and core at 0.18% mom (2.5% yoy).
