What the OpenAI valuation means for stock investors
Why it matters: Amid calls of a market bubble, the lofty valuation provides justification for sky-high AI stock prices.
Driving the news: OpenAI is weighing a secondary stock sale, Primack says, as first reported by Bloomberg.
The deal would increase its valuation by nearly two-thirds.
The tech company's previous valuation was $300 billion.
What they're saying: "This is an AI Revolution, and OpenAI is the golden child," Wedbush Securities analyst Dan Ives tells Axios.
The valuation for OpenAI could "hit a trillion," according to a note from Ben Emons, chief investment officer and founder at FedWatch Advisors.
That could drive growth in sectors like semiconductors and chips.
Zoom out: The OpenAI valuation mirrors companies with exposure to AI driving the market.
Fewer stocks are trading above their 200-day moving averages, and the number of stocks climbing versus declining is decreasing, Emons notes.
That means a smaller number of stocks that are already expensive are driving the broader market, which leads to concentration concerns.
However, if valuations are justified by earnings growth, then investors are right to be getting in, regardless of the elevated prices.
Zoom in: Emons highlights more baskets of stocks with AI exposure are outperforming the Magnificent 7.
That could indicate investor appetite for lesser-known AI plays like S.K. Hynix (up 50% this year) or Vertiv (up 17% this year), as the Magnificent 7 stocks become more expensive and aren't performing as well on a year-to-date return basis.
As Axios Markets has reported, the AI supercycle ETF is up 23% year-to-date, versus the Magnificent 7 gaining 6.2% in the same timeframe.
Yes, but: The OpenAI valuation could justify the prices of Magnificent 7 stocks with heavy AI exposure.
Be smart: Tech stocks are historically overvalued at the beginning of a technological supercycle.
If you worried about valuations, you would have missed every tech rally in history, according to Ives.
The intrigue: OpenAI's employee stock sale also points to the increasingly delayed IPO process for startups.
Employees used to stick around for a firm to go public. But that's taking longer and longer, and companies like OpenAI are finding new ways to reward employees in the interim.
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