Power Lunch - Stocks sell off as OpenAI report hits market 4/28/26

Episode Date: April 28, 2026

The UAE announces it is leaving OPEC. Vaneck Funds' Jan Van Eck joins with his take on the market.   And should you be investing in small caps? Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Concern about Open AI and concerned about the future of OPEC. Welcome to Power Lunch, everybody alongside Kelly. I'm Brian. Today, it's really all about EBDA, AI, and the UAE. As earnings, artificial intelligence, and energy grab the headlines, is one of OPEC's oldest and largest members. Calls it quits, what it means for oil and America coming up. And a new report that OpenAI has missed those key revenue and user targets,

raising questions about their whole AI ecosystem, The NASDAQ down more than 1% as questions grow over OpenAI's spending, growth, and its high stakes push toward an IPO. We have the reporter behind that story coming up. A lot to get to, but let's start with the markets where the S&P and NASDAQ are pulling back from their record highs. As the Wall Street Journal reports that OpenAI missed targets for revenue and weekly users, it's raising concerns over whether the chat GPT maker can support the price tag of its massive infrastructure buildout. and what that means for the broader tech sector. And by the way, energy, memory, chips as well.

Everything caught up in the AI arms race. Some of the biggest names in that are selling off today, as you can see there. Our next guest is the CEO of the company behind the SMH, which is shaking its head today. I don't know if you get that. Anyway, Jan Vannack is CEO of Vannac funds, and we are thrilled to have you here. Let's start with the significant, look, if it'd be one thing if Open AI was collapsing under its own rate. It's another if a competitor has come on the scene or two and dislodged it from that position. So to quote Sebastian Maliby last hour, he said, I don't think it's an AI bubble.

I think it's an open AI bubble. Do you agree with that? Well, a lot of different things to unpack there. But I think the big inflection point for us in Q1 was that Anthropic was able to monetize corporate America. Right. And that's the risk for open AI. They're a great consumer product. They have hundreds of millions of users.

can they also pivot and get revenue traction in corporate America? A lot of that was priced in in Q4. Oracle and CoreWeave got really hit. They were down 40% in Q4. Now they're kind of bouncing around sideways. It's a big move today. But I think that the key thesis is they can generate revenue from corporate America. It's a big question for open AI, but not for the space generally, I'd say.

If Open AI were to stumble, what would happen to the overall moment? market, maybe nothing? What do you think? I mean, there's a lot of wippy action in the AI trade space. Like, SMH, love SMH, right? Our biggest ETF. But it's going all over the place. And Nvidia, when I came on last, I think six weeks ago, I said it's forward 20 times. It's attractive. Now I'm like, oh, my gosh, it's up 15 percent. It's up like crazy. It looks like Mount Everest. It's insane. So I think you just have to, there's going to be more volatility in this space, which makes me a little bit nervous, but I think overall the trend is fantastic, right? I'm sure there are a lot of people who didn't kind of press hard on that bet from the

lows who are wishing that they had. And the question now, to your point is, do you press hard and double down on an AI trade, which is going to have this kind of this headline risk around it, especially into earnings season? Because that's where the growth is, or do you kind of look elsewhere? I'd be a little patient in deploying all my money. I think there's a little bit maybe more downside and the concern, the revenue concern. There's so many other risks to Open AI that people don't measure. So one is like there's switching costs are very low between one model and another, right? So, I mean, a company without a moat should have a lower valuation.

Technology risks. Like these models are built similarly. There's a lot of different model paradigms, if you will. So there's a lot of risks in these names. I wouldn't, you know, be all in, you know. Let's be optimistic. What's the best case scenario? for the SMH semiconductors and markets.

We have a compute shortage. I mean, pounding the table, there's been so much visibility. People didn't want to believe the NVIDIA numbers. But let's look at it. In every quarter, you have the MAG7 just compounding, spending more capital, but making a lot of money, right? So everyone's like, I'm concerned, I'm concerned. Every quarter, there's just a re-underwriting of that thesis.

So that's the big 10-year thesis that we're all about. Does that 10-year thesis that you don't worry about this week, whatever is said in the earnings. That's the next big one to kind of get through in terms of that narrative. Look, technologies are always evolving so quickly, Kelly, that I think that there could be, you know, if you think there's a two-year window or visibility on compute, but there could be technologies that cut that efficient and make it more efficient by 50% overnight. And that will shake the market, no doubt, right?

No, no bull market goes up in a straight line, but you don't want to miss the overall trend. Well, if we're playing a game, guess that number. I'm going to throw out a number and see if you or our audience can get it. 42%. You know what that refers to? 12-month gain for the NASDAQ. The NASDAQ is up 42%. It's one of the greatest 12-month periods.

I know we're in the media. We like to go January 1st to December 31st. It's not how calendars work. It's just a rolling 12-month period. 42% is one of the greatest 12-month runs in the history. of the modern stock market. What's powering that? That lack of compute?

Buyers, trillions of dollars on the sidelines, or D, all the above? I mean, our thesis at Vanek is that there are these 10-year trends that the market can miss, like the rise of China or things like that. Why? Because we look backwards, recency bias. We've always kind of in our minds known that the compute shortage was ginormous. Every AI CEO says that. Every Mag 7 CEO says that, yet we can't imagine that revenue and profits are going that high.

Why? Because we look backwards. So we know for the next two years at least, but there's always technology risk. Can I ask an energy question then? Is there a 10-year narrative there? Is the Iran War kind of a – I don't want to use the black swan term. Or is there something with the energy space where we're talking yesterday about the sleep like a baby portfolio, which is 25 percent equities, 25 percent cash, 25 percent.

commodities, 25% bonds. So what do you think is going on with kind of the energy in some of the commodity spaces? Yeah, I mean, I think oil, put the war aside, we came into the year very oversupplied. And we think that this sort of pressure on the energy market was going to be tighter in the second half of this year. This is kind of accelerated. Maybe the UAE news or whatever will lead to more of a sell-off in the oil price. If the street reopens, Brian and I are debating what that means.

I don't like that term. That's why you used it. So let's say it reopens in a month. There will be a sell-off in oil. So we think that's when a good time to buy because we see this as kind of a multi-year trend. So you're positive on that. And just a quick related question is what about the precious metals? At the start of the year, all we were talking about was silver and gold and the rest of it.

Yeah. The big risk, one of the big risks of this war is the U.S. government spends too much money. That could blow our budget deficit from the mid-5% of GDP to wait to like over six and a half percent. The tenure will not like that. We have all this debt. That's the story that went away, but it's going to come back. At some point, you don't know when. It may not be for a while, but that's when you want to have gold in your portfolio.

Again, I'm feeling good today. Let's go to the bull case on this. It goes to your point. So let me give you a sort of an alternate thesis, which we don't talk about a lot, which is the war ends. UAE is now leaving OPEC, which we're going to have a lot more on, by the way, in the next segment. Don't want to steal too much from that. And the world just starts pumping oil sort of in a free-for-all in a way.

Price of oil is at 50 bucks in 12 months. The economy is still on firm footing, and we still have the AI bull thesis. What then? Awesome. Scoop up some more energy. That's my point. I think that will get priced in, but it's still a longer term. The U.S. is not going to be able to increase volumes that much.

and Venezuela can add, South America and add, you know, other producers can add. But I don't think it's enough to meet global demand, even though, you know, this war will change the demand function a little bit. Before we let you go, yeah, yesterday on this program, Leslie Picker reported that Blue Owl that the investors had not actually tendered a lot of their shares at the 30% discount that Saba was offering. Right. You also think that the sell-off might be overdone. I don't want to overstate it in some of these private credit types of vehicles. Is that right? Can you just talk a little bit about that?

There's a tremendous mispricing between private debt as priced through BDCs and high-yield bonds. High-ield bonds are defaulting at 2.5%. BDCs are priced as if their underlying loans are going to hit a 10% default rate. It's way above where it is now. That's a business development corporation, correct? And they trade on the stock market every day. They're trading at a 20% discount to their NAVs. I like both the stock of Blue Al, those companies.

Just a quick follow. You like the stock of Blue Owl, the parent company, and you like a lot of these BDCs. Even, are you bearish on software being kind of cannibalized by AI? Or do you know, how does that? Because some of these do have 80% exposure to technology companies. It's priced in. I definitely, I think that is a real risk.

There are, I think I've Kelly 20 risks to all the private credit that I keep adding one almost every day. I added one this morning. But, you know, listen, I think there's just value there. if you're okay with the economy, if you're okay with companies generally are not over leveraged, which is the situation. So given that macro view, yeah, I think if you want risk in your bond portfolio, clip those coupons, BDCs are attractive. And we talked about the sell-off in private credit may be manifested in the BDC prices. So BDCs traded like a 30% discount during COVID.

Oh, wow. Now they're close. They're in that ballpark. I mean, we're not at COVID levels, right? So I'm on the bull of side. There you go, Brian. I'm on the bullish, you know, takes on what? There's one more. Can I add one more? Please. Blue Owl sponsored the U.S. Tennis Open.

This is my favorite thing, right? What is, it's like a company putting a fountain in front of their headquarters. Like, don't do that. Don't sponsor the U.S. Open. You don't need Blue Al, a private credit shop on the t-shirt of every professional tennis player. You just seen John Vanette coming on to say. That was the hubris, right? You look for that.

It's the old once a company. names a stadium short that company's stock kind of a thing. Same thing, yeah. But I had never heard the fountain twist on this or the, there's lots of NBA jersey patches. You don't know if we need to go through. Fountain hater. I love water treatment. I've got you.

We've got your tie for next. I think the theme might be a fountain. Why not? A fountain of oil. I would do private credit if I were doing a tie today. Wow, that's some strong conviction. A very high conviction. You did the blue Twitter bird.

So now you can do the blue owl with a tootsie pop. Jan Veneck, thank you very much. All right, speaking of borrowing costs, let's check the bond market. Now, not a huge moving debt levels right now because, of course, the markets are focused on tomorrow. What is tomorrow? Tomorrow, folks, don't forget, the Fed not only has an interest rate setting meeting, but it is also Jerome Powell's last meeting ever as chair of the Fed. That's a big deal on many levels.

That Fed meeting tomorrow. right here, power lunch, 2 p.m. And after the break, the UAE making a power move against OPEC. As oil is back around the $100 a barrel mark, RBC's Halema Croft and RAPIDAN's Bob McNally have their takes on the impact that will have after this. Global oil today, the United Arab Emirates, saying it is leaving OPEC. Our colleague in the UAE, Dan Murphy, sat down with the UAE's head of energy and asked about his country's decision to exit OPEC.

This decision has been taken after a very careful and long review of our policies and strategies. As you know, UAE is not only a local producer. We have an international aspiration and investments, and we've been actively pursuing opportunities worldwide. The decision to be outside any constraint is something that important for us to ensure that we are attaining at the market condition at the right time and at the right pace from our point of view. Now, the UAE has been in OPEC over 50 years, and while the country certainly has had its differences and disagreements with the group, it always held on. and hung in. Until today, to be clear, the UAE is not a massive oil power.

It ranks just eighth in total oil production worldwide. It's under 3% of the world's daily output. But the UAE leaving has other larger implications. With its exit on May 1st in just three days, it will cut OPEC's share of daily global oil production to under 30%, down to about 28%. All this based, by the way, on February, numbers, pre-war numbers. This would be the first time ever that OPEC share has been that low.

And remember, OPEC is one group. It's an official organization, but there is also the larger OPEC Plus coalition, which includes Russia and another 5 million or so barrels a day. So look at this. Here's your numbers. After May 1st, OPEC will be right around 28% of global production. The OPEC Plus group, mostly that is Russia, another 14%. The United States, just about 13% of daily global oil production, and rising, by the way, and the rest of the world makes up just under the other half at about 45%. Something I want you all to remember. In the early 1970s, OPEC was about 50% of total global oil production.

But more directly, OPEC controlled half the global oil market just 50 years ago. So today, quite the change. Let's get a very unique view from two people who not. not only no global oil markets inside and out, but who have been to many, many OPEC meetings. They know the group and the people well. Halima Croft of RBC Capital Markets on set. Bob McDowley of Rapidat Energy Group, by the way, who also wrote a great book on the global markets called crude volatility. There it is.

It is like Halima's daily notes, a must read. Bob and Alima, thank you very much. Lima, starting with you, not the biggest oil producer in the world, but how big of a deal is this for OPE? it's a big story, obviously, to have UAE exit the producer group. This had been a story that I think had been foretold for years. Once UAE had made significant investments in expanding its spare capacity, launching its Murban benchmark, there was a sense that UAE would look to monetize that investment. There had been issues within OPEC over compliance with production quotas. UAE had been producing at significantly elevated levels. So this really doesn't mean, I think,

that we're going to see any real changes in terms of market fundamentals, but obviously there'll be questions about cohesion of the producer group, but the reality is right now, Brian, no OPEC cuts are coming. Countries are going to be having to build back capacity within OPEC when this war ends. And I think, Bob, the other side of that, and Kelly asked a great question in her show in the previous hour, sort of about what's the future of OPEC. You can get into that if you want. But in months ahead, is this a sign that maybe the UAE tries to wildest,

expand its output, not from 3.3 million a day, but to 4 million or 5 million in years to come. And we kind of get this, all of a sudden, this market share fight where prices fall. Ryan, no, you're right. That's likely what we're going to see here. We're going to exit this crisis, hopefully without long-term lasting damage. And then producers are going to go all out to rebuild inventories, to recapture market share, et cetera. And UAE is signaled we will not be constrained. But at some point, it could be months, it could be years. We're going to come up against that demon in the oil market, that devil over supply.

And then there'll be two choices to producers like UAE, whether it's coming to OPEC meetings or not. Two choices. We either cut production and keep prices stable, or we don't. And then the price of oil will exhibit its notorious volatility and crash. We've seen this movie over and over again. In recent episodes, it was really. Russia that tried to escape the collective supply management. Now in the future, it may be UAE. We've seen this story. Thank you for showing the book since 1859. It's a story as old as the hills

in the oil markets, and we'll see it again. Halima, what would you add? And again, there's a lot of consumers who would say bring on the oil price crash. Sounds great. Again, the flip side of us benefiting when oil goes high because of our energy production is that we will also feel the effects of that if another crash is coming. I mean, the question is, when would another crash be coming? And we still have the situation with the Strait of Hormuz effectively shut. We do not have any indication that we are closer to reaching agreement to restart, the flows through the Strait of Hormuz, and there's been significant damage to regional energy infrastructure.

By some accounts, 80 facilities have been damaged, one-third severely damaged, which could take two to three years to bring those facilities back online. So we are talking about a prolonged restart process for the Middle East once this war ends, and we don't have an end date to the war. I think the timing, though, is very important. The UAE has been very, very vocal that when this war ends, Iran cannot be exercising toll booth rights. And they have been essentially saying, finish the job. And so I do think we have real concern in the UAE that we could potentially leave this conflict in a way that endangers their long-term security interests.

Does this, Bob, you think, empower the White House just a little bit? No, this is not a good thing for the White House. House, and it's not a good thing for U.S. shale producers. Just go look what happened to U.S. shale production the last time we had a non-functioning OPEC plus when we needed it in the second quarter of 2020. Price of oil collapsed. We lost over two million barrels a day of shale production, and you had companies, shale producers begging the Texas Railroad Commission to get back in the business of imposing quotas. Look, the only thing worse that White House understands, I think now the hard way, the industry certainly understands. The only thing worse than a fund.

functioning OPEC plus is a non-functioning OPEC plus because that price volatility kills U.S. production first. This is a critical point you're making. So I just want to follow up on that. So we don't, I understand higher gasoline prices are not ideal for millions of families. They add a, you know, they had a dollar right now a gallon nationwide, which matters to a lot of families. But I think what you're saying is that for the industry, if we were to get this sort of market share price war again, sort of a la 2020 in some ways, maybe not that severe, that $35 barrel, while great for gasoline prices at the pump,

is terrible for jobs and the industry. It is. It's like the low part of the space mountain ride. You may enjoy when you're at the bottom and it's gentle and so forth and even the ride up. But look, consumers don't enjoy when those prices spike. And if we go way down in prices and we kill U.S. production, we will then go way up. That space mountain ride will continue. It's better for everybody, consumers and industry.

If we have price stability, we all have a range of prices we can all live with. The worst thing for everybody is the instability that will result if we don't have a functioning supply management group like OPEC Plus. Well, we could just be OPEC, HLEA. Meaning if it back in the day when they were 50%, they kind of controlled the marginal price of that barrel of oil in the world. It sounds like now we are, our heft, we're 13% of global supply at OPEC's 28%. So the U.S. is able to exert some influence on the oil price as well. 100%. I mean, why did we have to have the shotgun marriage with Russia and OPEC was to deal with the new market realities of U.S. production?

But if there ever is a crisis, OPEC and particularly Saudi Arabia is the only country that sits on spare capacity. So when there is a problem, you usually have to call Saudi Arabia. The problem now is all Middle Eastern production capacity is behind the wall. It's a stranded asset. But make no mistake, Saudi Arabia still remains or remain after the war, the central banker. Can I semi-correct the great Halimacroft? I don't know if OPEC and Russia's, did they get married or are they just dating? Okay, because you said shotgun wedding.

So I don't know if they're married. I think they're living together, but I don't know if they're married. And I bring this up because, on a serious note, because Russia's in that DOC, declaration of cooperation, that OPEC plus, you can bring that graphic back up. If I were OPEC, if I were the South – and OPEC, by the way, is an organization with a headquarter building, and we've been there many times and lots of employees. Yeah, the great basement with the cookies. And a stairwell, which we get stuck in.

But if I were the Saudis or OPEC, I would say, hey Qatar, which left. Come back. Hey, Oman, which left. and, hey, Russia, why don't we get married? Is there a chance Russia formally joins OPEC? What's so interesting, Brian, that as you say, are they married, are they dating? You know, they've been together now for 10 years. So it's longer than most marriages have lasted.

Right. You think there's a chance that they actually consummate the marriage, get married? Like, is Russia's, they remember the Plus Coalition, but if you want to send the message to the UAE and you were OPEC, I'll jump in, you would say Russia join. fully become a full member of OPEC, now you're bigger than you were before. This will be. You know, bigness, Brian, if I can come in on that, we've had a lot of discussion, how big, how big, 50 percent.

You know what, bigness doesn't matter. To paraphrase Mao Zetong, power in the global oil market flows through the barrel of spare production capacity. That's what matters, not how big of a producer is what Halima just said. It's spare capacity. That's the secret sauce. And until up till now, Saudi Arabia and UAE were the big holders of that spare capacity, that power. That's what matters. Yes.

And Brian, I mean, the reality is, is that when we exit this war, really only Saudi Arabia will have spare capacity. So their power in terms of playing a central bank role will be intact. Do you know how much they have? Is it a million, two million, three million barrels a day, roughly? Absent everything going on in the straight-of-home moves, Let's go back to pre-war situations. Bob and I, well, this is what's so interesting, is Bob and I were in Saudi Arabia. We were in Kuwait right before the war began.

And there had been a whole discussion at that moment about the thin OPEC spare capacity shock absorbers. I mean, before this war began, we did not have a lot of installed OPEC capacity that could be brought to bear because almost everybody else had basically been producing at maximum capacity except for Saudi Arabia. Halima and Bob, just an absolutely great discussion to people that literally have been there in the, what did they say in Hamilton, in the room where it happened? All right, one thing I do want to add a little more original reporting on is that situation in the Persian Arabian Gulf and the Strait of Formuz. I spoke with the source of the marine industry about an hour ago and they said this, quote, as of today, the industry has seen a number of successful transits now and the premium rate, meaning insurance, is coming down, but obviously significant. risk remains with floating mines and possible detentions by the Iranians. My source added they were overall pleased the ceasefire mostly seems to be holding, although they were very quick to add. Some random ships have been attacked the last few days. So is the straight open per se,

not directly, but more ships going through it. And yes, you can get insurance. Reminder, sign up my forthcoming energy related newsletter. It's out every Wednesday, which means tomorrow. We're going to have more on this big OPEC news, some insight as well. well, maybe some stock picks on this and other things. I pretty much was done with it until now. That's the problem. And now I have something to do tonight, which is rewrite the entire thing. One thing on that story, Brian, interesting question for your source.

Are the ships using the Iranian channel? Because that's what we've heard. They are basically, if you're going through, you're going to the Tehran toll booth. And they are. Yep. It's a great point. Coming up, the Wall Street Journal report, moving markets today on OpenAI missing key targets, the author of that piece with the inside scoop next. Welcome back and as we've been discussing all morning long, the report that is weighing on the tax sector.

The Wall Street Journal's article on Open AI missing key revenue and user targets, raising fresh concerns about its massive spending commitments on data centers. Joining us now is the reporter behind that story. Berber Jin from the Wall Street Journal. Berber, it's great to have you here. Welcome. I know that OpenAI has since pushed back against your piece. I believe the CEO and CFO have issued some kind of statement saying, we're on the same page. There's no difference.

Is there anything you'd like to clarify about the story at this point, or do you stand by it? No, we stand by our reporting. We reported that OpenAI missed a few key revenue and growth targets last year and early this year. And as a result, company leaders have started to reexamine the wisdom of the kind of secure everything compute strategy last year that tied much of this tech sector to OpenAI. And yes, we 100% stand by that reporting. And yeah. What's fascinating to me now is the juncture they are at. They can either continue to pursue compute, what did you call it, the everything compute strategy and have these massive computers.

that is levitating the entire AI trade or they can back off. It sounds like they're going to press the bet if that's the right phrase to use. It sounds like they're going to continue full steam ahead. I don't know. What do you, what does your reporting or your knowledge of the company suggests is the path they might choose? Yeah, I think this is kind of the question that no one really knows the answer to, which is how much compute to lock in ahead of time. Anthropic CEO Dario Amadehade has taken some veiled swipes at OpenAI saying they were a little bit irresponsible, I think it comes down to whether Open AI can sustain and meet the revenue goals that they set for investors. They're building the kind of compute build-out budget around how much they think they can make in

revenue. And I think what the article that the journal published last night shows and reveals is that they are experiencing real revenue strains when it comes to both. the consumer and the enterprise business. They missed revenue goals last year. They missed more revenue goals earlier this year. And that is a big difference from half a year ago when ChatsyPhee's growth felt really invincible. Berber, first off, congrats on the scoop. I mean, listen, when companies push back on your reporting, that's generally when it's right. So congrats. Anybody you're talking to on or off the record. I know off the record, you can't say names or whatever, but anybody you're talking to you that suggests that maybe OpenAI needs new leadership,

that maybe Altman and or Fryer need to be replaced? I'm not hearing that right now. I think we have reported that some shareholders in OpenAI have raised the question of whether Sam Altman is the best person to lead OpenAI as it becomes a public company. He has publicly said that he doesn't really look forward to being a public company CEO. We know he has a really mixed management track. record, and he appointed a kind of de facto CEO, someone who leads opening I's business divisions last August, Fiji Simo. And so I do think that is an open question as to what opening eyes leadership

will look like when the company goes public. Do you know, Berber, as they've, so a lot of this has come because of the rise of two competitors, Gemini, to begin with, and of course, now Anthropic with all of its enterprise tools. Now, Chad GBT, obviously, has launched its own. I think it's Codex, right, that is trying to do what Anthropic does. What does your reporting suggest in terms of their kind of ability to now take on this formidable competitor? Could they use Codex and these products to ultimately kind of figure things out? Yeah, I think OpenE Eye has definitely gained momentum with Codex. They've announced really fast growth with that product and obviously have reoriented the business around trying to win.

the coding segment, but I think two weeks of momentum really isn't enough to definitively say, you know, how this will ultimately play out. What we, what still remains the case is that Anthropic has a lead amongst enterprises and coding users, which has become the biggest market right now in AI. And what we also do know is that the past three or four months have been really tough for open AI on the revenue front because they were kind of hit with this double whammy where Gemini stole market share late last year and then Claude, starting in late December into early this year, really took off. And so I think it really is an open question whether OpenAid can get over this hump and really get their ducks in a row to be able to meet the very ambitious revenue targets they've set. That is underpinning their very aggressive compute strategy.

Right. And the central question of how much investment in, you know, investment in, and what they've committed to in terms of a trillion plus to various kind of partners and customers that they're going to bring online, are they going to be able to meet that? Or are they going to have to change that or back off? Exactly. And I think opening, I will say, they raised $122 billion earlier this year. That was the biggest funding round in Silicon Valley history. It puts them on pretty solid financial footing.

But if you look at the projections that they've sent to investors, they have signed up for so many competing contracts. that they are projecting, even if they meet their revenue goals, that they will burn through that amount within three years. And so that is the kind of conundrum that the company is facing, where if investor sentiment starts to turn, especially ahead of an IPO, they're in a really tough spot because they might not be able to keep raising at the levels that they need to raise in order to meet those computing commitments. All right. It's a big story. I urge everybody to go read it. I'll push it out again. Berber Jin, reporter at the wall.

Wall Street Journal. Thank you. And to Kelly's point, OpenA, I did issue a statement and response, the article saying, quote, this is ridiculous. That's not my inflection. We are totally aligned on buying as much compute as we can and are working hard on it together every day. All right, up next, it has been one of the greatest starts to a year ever for the Small Cap stock index. Where does it go from here? Talk about it. Hey. Welcome back. And as we've been discussing all morning long, the report that is weighing on the tax sector, the Wall Street Journal's article on OpenAI missing key revenue and user targets, raising fresh concerns about its massive spending commitments on data centers. Joining us now is the reporter behind that story. Berber Jin from the Wall Street Journal. Berber, it's great to have you here. Welcome. I know that Open AI has since pushed back against your piece. I believe the CEO and CFO have issued some kind of statement saying we're on the same page. There's no. Is there anything you'd like to clarify about the story at this point, or do you stand by it?

No, we stand by our reporting. We reported that Open AI missed a few key revenue and growth targets last year and early this year. And as a result, company leaders have started to re-examine the wisdom of the kind of secure everything compute strategy last year that tied much of this tech sector to open AI. And yes, we 100% stand by that reporting. And yeah. What's fascinating to me now is the juncture they are at. They can either continue to pursue compute, what did you call it, the everything compute strategy and have these massive commitments that is levitating the entire AI trade or they can back off. It sounds like they're going to press the bet, if that's the right phrase to use. It sounds like they're going to

continue full steam ahead. I don't know. What do you, what does your reporting or your knowledge of the company suggests is the path they might choose? Yeah, I think this is kind of the question that no one really knows the answer to, which is how much compute to lock in ahead of time. Anthropic CEO Dario Amadeh has taken some veiled swipes at OpenAI saying they were a little bit irresponsible. I think it comes down to whether Open AI can sustain and meet the revenue goals that they've set for investors. They're building the kind of compute build-out budget around how much they think they can make in revenue. And I think what the article that the journal published last night shows and reveals is that they are experiencing real revenue strains when it comes to both the consumer

and the enterprise business. They missed revenue goals last year. They missed more revenue goals earlier this year. And that is a big difference from half a year ago when chat GPT's growth felt really invincible. Berber, first off, congrats on the scoop. I mean, listen, when companies push back on your reporting, that's generally when it's right. So congrats. Anybody you're talking to on or off the record, I know off the record, you can't say names or whatever, but anybody you're talking to that suggests that maybe OpenAI needs new leadership, that maybe Altman and or Friar need to be replaced? I'm not hearing that right now.

I think we have reported that some shareholders in OpenAI have raised the question of whether Sam Altman is the best person to lead OpenAI as it becomes a public company. He has publicly said that he doesn't really look forward to being a public company CEO. We know he has a really mixed management track record. And he appointed a kind of de facto CEO, someone who leads Open AI's business divisions last August. Fiji Simo. And so I do think that is an open question as to what Open AIs leadership will look like when the company goes public. Do you know Berber as they've, so a lot of this has come because of the rise of two competitors, Gemini to begin with, and of course now Anthropic with all of its enterprise tools. Now, Chad GBT, obviously has launched its own. I think it's Codex, right,

that is trying to do what Anthropic does. What does your reporting suggest in terms of their kind of ability to now take on this formidable competitor? Could they use Codex and these products to ultimately kind of figure things out? Yeah, I think OpenE Eye has definitely gained momentum with Codex. They've announced really fast growth with that product and obviously have reoriented the business around trying to win the coding segment. But I think two weeks of momentum really isn't enough to definitively say, you know, how this will ultimately play out. What we, what still remains the case is that Anthropic has a lead amongst enterprises and coding users, which has become the biggest market right now in AI. And what we also do know is that the past three or four months have been really tough for

open AI on the revenue front because they were kind of hit with this double whammy where Gemini stole market share late last year and then Claude Cod Code starting in late December and to early this year really took off. And so I think it really is an open question whether opening Act can get over this hump and really get their ducks in a row to be able to meet the very ambitious revenue targets they've set. That is underpinning their very aggressive compute strategy. Right. And the central question of how much, you know, investment and what they've committed to in terms of a trillion plus to various kind of partner. and customers that they're going to bring online, are they going to be able to meet that?

Or are they going to have to change that or back off? Exactly. And I think opening, I will say, they raised $122 billion earlier this year. That was the biggest funding round in Silicon Valley history. It puts them on pretty solid financial footing. But if you look at the projections that they've sent to investors, they have signed up for so many competing contracts that they are projecting, even if they meet their revenue goals, that they will burn through that amount within three years. And so that is the kind of conundrum that the company is facing, where if investor sentiment starts to turn, especially head of an IPO, they're in a really tough spot because they might

not be able to keep raising at the levels that they need to raise in order to meet those computing commitments. All right. It's a big story. I urge everybody to go read it. I'll push it out again. Berber Jin, reporter at the Wall Street Journal. Thank you. And to Kelly's point, OpenA, I did issue a statement and response, the article saying, quote, this is ridiculous.

That's not my inflection. We are totally aligned on buying as much compute as we can and are working hard on it together every day. All right, up next, it has been one of the greatest starts to a year ever for the Small Caps Stock Index. Where does it go from here? Talk about it. Small caps, big gains. Could be an RBI. You may not realize it, but this has actually been the fifth best start to a year for the Russell 2000 Small Cap Index in the last 20 years. Let's talk about it. And more with Greg Tuerto. He is portfolio manager with Goldman Sachs asset management. And again, it's not the best, but fifth best is pretty doggone good.

12% gains so far this year. This is a group that is supposed to be levered entirely to the strength. of the American economy, but all we hear about is how gas prices are going to ruin everything. The market isn't acting like that. No, no, it's not. And I think it's been a great start to the year, too. Going back to January, the small caps are up 10, 12 percent, and that's a really good harbager of the future, you know, the Yale-Hersch stock trader almanac of old type of predictions. So we do think there is some insulation to some of the parts of the economy that are acting the way you talked about. tech is insulated, health care is insulated, and more interestingly,

consumer has done quite well, and you would not have expected that. In the small caps, we always talk about the tilt of the Russell 2000. Do you even worry about the Russell 2000, or do you kind of stock pick from, can you talk a little bit about that? You have to worry about it. It's your benchmark. You have to beat it. But I do think the tilt sometimes gets a bit annoying.

I do feel like there is a significant amount of open field to pick from, which is why, you know, when there are times where people are kind of saying there's nothing to buy, I laugh. We have more ideas than we can put to work, which is always wonderful. And I do think that that's part of the interest and the fun of being a small cap manager. Do you watch NASCAR? I do. Did you see the Talladega race?

I did not. It was won by Carson Hosevar of Portage, Michigan. I watched. His name I'm not familiar. Yes, well, he's new. He's young and he did this weird stunt at the end. I bring this up because he's sponsored at that race by Tatechavis. Chili's. They got a lot of good publicity for that one. Chili's, which is Brinker International,

is the actual company. The ticker is Eat, EAT, doesn't get a lot of attention. We talk about Shake Shack and Chipotle all the time. You like Brinkers. Why? And it's nothing probably to do with Carson Hosebar. No, but I do think that if you think about what they've said, it's more of an execution story than a flash type of story. And it's really interesting right now. They've done quite well with a value menu. You know, you get a lot for a little when you go in there, a burger and a drink and a side for $12. Now they have this chicken sandwich. Chicken sandwiches have normally been really good traffic boosts for companies like that. And we do expect that to be a big, a nice big tailwind as we go through the rest of the year and something that they

haven't had in years past. Dare I ask what his stunt was? Or is it something you can talk about? He tried to drive the car with his foot, his leg in the car, and he was sitting on the side of the door. And he was trying to steer it with his handball. He was sitting sort of halfway out of the car. It was a stunt. It worked, and Chili's, I only brought it up because they, congrats to Carson, but they got a lot of publicity for it, right? I mean, that what a time, and I think, by the way, that Ricky Bobby and Talladega Nice with the Phillies. I can't remember. Well, speaking of people who don't need a stunt to do well, you have a name in here that's kind of part of the AI ecosystem, Allegro Microsystems, power semis of 60% year-to-date. Are there other small-cat plays like that?

There are a lot. I think that's just one of them in the semiconductor device space. I think that, you know, Yon had talked about some of the shortages you see on the memory side. So you can play it on the semiconductor capital equipment side as well where they're helping produce more of this memory to kind of get us out of the shortage. But power semiconductors right now are really in the forefront. The power needs, we talk about the power needs to power the data center. The powering of the chips, powering the boards, powering of the entirety of the ecosystem that's inside the data center is a, is a challenge. And I think that getting the heat and the thermals right will kind of be a big part of the next generation of this GPU up. We often talk about financials, like some over exposure to the banks there, but you like Piper Sandler. There's a defense play, Moog that you like. There's a psychedelics play for those who are, I don't want to say into that, but looking, looking if that's, you know, and that is definium therapeutics. And so in all of these cases, are you going literally stock by stock as opposed to scanning for, sectors are taking a view? We build a stock-by-stock portfolio.

I think, you know, our biotech is always a scary place, but we think we have a really good analyst working for us. And, you know, he was ahead of this, you know, where we had seen a number of different trials for anxiety, depression, and now you have some of the more, you know, kind of intricate and deep set, you know, kind of major depression type diseases out there. And I think that this is just the first leg of, you know, kind of where you're getting the administration behind. it, you know, with some high-powered influencers.

And I do think that there'll be a few more of these down the road. Joe Rogan, texting the president, get this done. And it was. Greg, thanks very much. Appreciate it today. Thanks for having me. Greg Tuardo with Goldman Sachs Asset Management. To Leslie Picker now for the CNBC News Update.

Hi, Leslie. Hi, Kelly. The Department of Justice indicted former FBI director James Comey today for the second time. Our sister network MS Now reports he is being charged for allegedly making threats against the 47th president in a social media post with a picture of seashells forming the numbers 86-47. Miriam Webster defines the term 86 as, quote, to throw out or to get rid of. A judge dismissed a previous indictment on different charges against Comey last year on procedural grounds. Gennon Van Dyke, the U.S. Army soldier, charged with fraud over polymarket bets, pleading not guilty this afternoon.

Van Dyke, who was part of the Maduro operation in Venezuela, is accused of using confidential information to make $400,000 on the predictions platform. And the Commerce Department reportedly closed its investigation into allegations that meta employees and contractors can access encrypted messages on its WhatsApp platform. Bloomberg reports that the probe came to an end, despite an agent from Commerce's Bureau of Industry and security concluded that META could access those encrypted chats. Meta calls the accusations, quote, patently false. Kelly, I'll send it back to you. All right, Leslie, thanks. Let's get to Julia now, Julia Borson, with some breaking news on Disney and the FCC, Julia. The FCC publishing a letter it sent to Disney,

in which it says it's been investigating Disney's ABC stations for possible violations of the Communications Act of 1934 and the FCC's rules, including the agency's prohibition of unlawful discrimination. The FCC saying it has the authority to call the broadcaster's licenses, for early renewal to enable the FCC to ensure that it's meeting its public interest obligations more broadly, saying ABC is now directed to file license renewals by May 28th. Now, all of this comes, as President Trump calls again for Disney to fire Jimmy Kimmel after he made a joke about the First Lady earlier this week.

This could be the big first public issue for Disney's new CEO, Josh DeMorrow, of course, ahead of their earnings, which are set for next week. Back over to you. All right, Julia, thank you very much. Are you looking for opportunities outside of technology? How about a company that stock is up 500% in a year? The name ahead. Welcome back to Power Lunch.

I'm Dominic here with your market navigator. Much of the focus this week is, of course, on big tech. But our next guest is looking for opportunities outside the mega-cap names. He's looking at one smaller AI stock that has shown some bouts of extreme volatility, more than 500% in the past year. But he believes it could be gearing up for an upside run even with the volatility. Joining me now for the case from the New York Stock Exchange is Jay Woods, chief global strategist over at CNBC or at Freedom Capital Markets.

He's a CNBC contributor. So Jay, let's talk about this AI trade that is not hyperscale. Yeah, and we're talking about applied digital. The stock peaked January 28th and went down 52% where it bottomed on March 30th and then it ran 90%. And the last three days, it's given back 20%. So this isn't for the feign of heart, but the traders are going to love this stock. You know, it is an AI infrastructure play.

We deal with the Dana Centers and the picks and shovels behind the scenes. It's down today because of what? Because of that Wall Street Journal article and a relationship with OpenAI. But I think this sell-off today gives investors an opportunity to buy the stock. Fundamentally, our analyst Paul Meeks, he loves this stock. 12 buys, no-sells, average target, 52. Then when I match my technicals with the fundamentals, I really like it. When you look at this on a daily basis, it's just come in 20% in three days to an area of support.

313, great area to accumulate shares. I would buy this stock, and if it got below 28 and a half, which would fill a gap from when it went up, I would get out of this stock, I'd revisit the trade. But I think the upside is back to where it was. Wait, wait for it, three days ago. and then 40 is major resistance. We break above 40. Short term, we should get a bounce long term.

The setup is there with a nice ascending triangle when you back it out and look at it on a longer term time frame for this stock to run into the low 50s, mid-50s, which would match all those fundamental analyst targets. So Applied Digital is coming into a nice area where the risk reward is favorable to buying the stock here. All right, Jay Woods is the case for infrastructure plays.

Thanks very much, Jay. We'll see you soon. Brian. I'll send things back over to you. All right, Dominic Chu, thank you, and we'll be back with more power lunch right after this.