OpenAI’s potential decision to delay its initial public offering until 2027 has sent a wave of selling through global technology stocks, dragging major indices lower in Europe, Asia and the United States and raising new questions about the sustainability of spending on artificial intelligence infrastructure.
Market Performance
In London, the FTSE 100 closed Friday down 0.4% at 8,237 points, although it still managed a modest weekly gain of just over 1%. The FTSE 250 ended 0.1% lower, while the AIM All-Share fell 0.2%. Over the full week, the FTSE 250 slipped 0.2% and the AIM All-Share tumbled 3.4%.
European equities also lost ground. The CAC 40 in Paris fell 0.6% and the DAX 40 in Frankfurt dropped 1.3%. Across the Atlantic, the Dow Jones Industrial Average edged up 0.2%, but the S&P 500 and the Nasdaq Composite each closed 0.1% lower.
Defensive stocks found favour in London as investors sought shelter from the sell-off. Tobacco firms British American Tobacco and Imperial Brands rose 1.1% and 0.8% respectively, with BAT announcing plans to begin a new share buyback next Tuesday, concluding on July 29. Food retailers Tesco and J Sainsbury also gained, climbing 1.1% and 1.5%.
The fallers were broad-based. Speciality chemicals manufacturer Croda dropped 4.9%, mining giant Glencore eased 1.3%, Premier Inn owner Whitbread declined 2.9% and lender Barclays slipped 2.0%.
Housebuilders were under pressure amid reports that Andy Burnham, the likely next UK prime minister, is considering a radical overhaul of the property tax system, including the abolition of council tax and stamp duty in favour of a single annual property tax of 0.48% of a home’s value. Barratt Redrow fell 1.3%, Persimmon lost 1.7% and Berkeley Group dropped 3.6%, the latter also hit by a downgrade from Berenberg, which moved its rating to ‘hold’ from ‘buy’, citing less compelling upside compared with other opportunities in the sector. JPMorgan analyst Zaim Beekawa noted that while the removal of stamp duty could be positive for transactions, continued speculation about changes may weigh on activity as potential buyers wait to see the final outcome.
Broader UK property data showed the average house price stood at £288,000 in June 2024, an increase of £8,000 year-on-year, with annual growth of 2.7% across the country. Scotland recorded the highest percentage increase at 4.3%, followed by England at 2.4% and Wales at 1.8%; Northern Ireland saw a 6.4% rise in the year to the second quarter. Separate figures revealed that UK retail sales surged 2.9% month-on-month in May, beating expectations, while consumer confidence rose for the third consecutive month to its highest level in two and a half years.
The biggest risers on the FTSE 100 were Endeavour Mining, Coca-Cola HBC, Sage Group, Burberry and Reckitt Benckiser. The biggest fallers were Croda International, Whitbread, Airtel Africa, Polar Capital Technology Trust and BP.
Technology Sector Under Pressure
The trigger for the global tech retreat was a report from the New York Times that OpenAI is considering postponing its initial public offering from late this year to 2027. The company, which had been preparing for a listing as early as the third or fourth quarter of 2024 with ambitions for a $1 trillion valuation, is said to be concerned it will not attract enough interest, partly due to the volatile recent performance of technology stocks and the disappointing post-IPO trading of SpaceX.
The news hit AI-related stocks and chipmakers particularly hard. SoftBank Group, a significant investor in OpenAI, saw its shares plunge more than 12% in Tokyo. South Korea’s Kospi index closed down 5.8% after a volatile week for chip giant SK hynix, which shed 8.4% on Friday. Japan’s Nikkei 225 fell 4.2%. In the United States, chip stocks including Micron, Advanced Micro Devices and Intel also declined.
Kathleen Brooks, research director at XTB, said the delay had weighed on market mood, although she noted there were already concerns that the market could not absorb such a large amount of equity issuance, especially alongside the SpaceX listing. “If OpenAI and Anthropic stagger their IPOs over the next 18 months or so, the market may be better placed to absorb these new listings,” she said.
Anthropic, another AI company, has confidentially filed for an IPO with a potential $1 trillion valuation after raising $65 billion in private capital; a public listing is expected as early as October 2026.
The broader concern, however, extends beyond IPO timing to the rising cost of the technology itself. Apple and Microsoft have both raised prices for products, citing increased component costs. Apple attributed a near 20% price hike to higher memory costs, while Microsoft blamed the rising cost of console storage and memory for an Xbox price increase. These moves are prompting questions about potential margin pressure for major tech companies as input costs climb.
Stephen Innes at SPI Investment Management said the “AI buildout is rapidly becoming a new source of cost pressure across the economy, and it is no longer confined to a few expensive Nvidia chips or hyperscaler earnings calls.” He added: “The appetite for compute is pulling through demand for memory, storage, power, transformers, cooling systems, fibre, generators and skilled electrical labour. This is what happens when a digital revolution runs headlong into a very physical world.”
Innes warned that “the AI trade is widening” and that “consumers may increasingly be asked to fund the bill.”
Currency and Commodity Movements
In foreign exchange markets, the pound traded at $1.3216 on Friday afternoon, slightly higher than $1.3213 on Thursday. Sterling edged lower against the euro to 1.1588 euros from 1.1604. The euro strengthened against the greenback, trading at $1.1406 compared with $1.1387 on Thursday. The dollar was little changed against the yen at 161.64 yen.
US government bond yields showed mixed moves. The 10-year Treasury yield traded at 4.37%, narrowing from 4.39% on Thursday, while the 30-year yield stretched to 4.86% from 4.85%.
Oil prices continued their downward trend, with Brent crude for August delivery trading at $71.49 a barrel on Friday, down from $74.42 on Thursday. Fears of a supply disruption eased after an attack on a vessel in the Strait of Hormuz: the cargo ship, reported by US media to have been hit by Iran, resumed its transit through the strait with the crew, vessel and cargo “unharmed”, according to Taiwanese shipping operator Evergreen Marine. Danni Hewson, head of financial analysis at AJ Bell, said the strike was a reminder to take “nothing for granted despite the increase in shipping flows through the Strait of Hormuz”. Broader oil market data showed that Brent crude had risen to $86.4 per barrel by the end of June, driven by summer fuel demand, OPEC+ production cuts and geopolitical tensions, after earlier dipping to around $77.50 in early June following OPEC+ plans to gradually unwind output cuts.
Gold bullion was quoted at $4,085.63 an ounce in London on Friday, up from $4,025.66 on Thursday. David Morrison at Trade Nation said: “Bulls will now be hoping that the area around 4,000 dollars now acts as support. But in the same way that the dollar was overdue a pullback, gold was overdue a rebound. Consequently, it may be too early to sound the ‘all clear’.” Global gold benchmarks, meanwhile, remained at historically elevated levels in June, trading in a range of $2,285 to $2,450, closing the month at $2,325.06 per ounce, a 0.2% decline for the month.
Monday’s global economic calendar includes retail sales figures from Japan and UK mortgage approvals data. In the week ahead, trading statements are expected from J Sainsbury and Primark owner Associated British Foods.
