US dollar's slide on OpenAI revenue miss signals AI bubble playbook

Financial markets saw a relatively quiet week. Unwrapped, the Federal Reserve pricing remained unchanged while major stock indexes traded in a narrow range. The conflict with Iran persists with routine warnings, though Donald Trump vowed not to launch an attack prior to the midterm elections. The trustworthiness of that commitment may be questionable. Hurricane Isaias, a Category 3 storm, is expected to make landfall on the US coast later today.

Economic reports were mixed, yet they still indicate deteriorating confidence, increasing cost pressures, and a generally robust economy, especially regarding consumer expenditure.

The key takeaway from this week for me is a specific market response: the foreign-exchange market's reaction to news about OpenAI's revenue falling short. A Financial Times report yesterday briefly captured market focus by stating that OpenAI's annualized revenue run rate was $50 billion, below the $70 billion anticipated by traders. That claim proved somewhat misleading, as it omitted partner revenue that would have allowed a direct comparison with Anthropic.

The immediate market reactions to that report are worth noting. Broadly, they followed expectations, with semiconductor stocks and utility providers declining. Intel dropped 5%, and Micron fell 4%. What stood out to me was the simultaneous decline in the US dollar. Typically, a rapid fall in risk assets prompts a rise in the dollar, especially versus commodity-linked currencies and sterling. On this occasion, however, the dollar weakened broadly and significantly.

This underscores a point I have made frequently this year: for a while now, the US dollar has been buoyed by investment flows into artificial intelligence. Apart from China, the United States is the sole destination for betting on the biggest technological trend in decades. That trend is absorbing capital across stocks and bonds, a dynamic expected to continue with Anthropic's initial public offering later this year and OpenAI's planned IPO next year.

However, the rally cannot persist indefinitely. Currently, every company is being valued as an AI success story, and valuations are staggering, even for a firm believer like myself in the technology. Whether the creators of AI, the research labs, or any of the eventual beneficiaries will sustainably generate profits from AI remains uncertain. Regardless, a transformative technology rarely requires a major catalyst to trigger a significant correction, and we witnessed the early signs of that this week.

Additionally, the pattern observed suggests that the typical rush into the US dollar during a bear market would be misguided this time around, akin to the dot-com crash era.