DealBook: OpenAI’s revenue surprise

Good morning. Andrew here. Nobody likes to talk about deficits, but we can’t afford to ignore them. The federal budget deficit climbed to nearly $2 trillion in the most recent fiscal year, the Congressional Budget Office said yesterday. The problem isn’t just that we’re spending far more than we’re taking in. It’s that the gap is growing.

For the tax nerds among us, Yale’s Budget Lab has a fascinating new tool that lets you build your own tax package, testing how much revenue different proposals would actually raise — and how they interact with one another as taxpayers change their behavior. It’s a useful reminder that even the seemingly simple answer of taxing the wealthy is complicated. (Was this newsletter forwarded to you? Sign up here.)

Questions about A.I. revenue and safety

The biggest artificial intelligence companies have justified their rapidly increasing valuations with revenue projections that keep climbing quickly.

But the revelation yesterday that a crucial OpenAI revenue metric had merely doubled in the last quarter battered shares of companies exposed to the sector.

It’s a fresh challenge facing the artificial intelligence industry, adding to concerns like safety, Sri Muppidi reports.

The latest: OpenAI’s annualized revenue, a measure favored by start-ups to demonstrate revenue momentum, was about $50 billion at the end of last month, up from roughly $28 billion at the end of June, an OpenAI spokesperson told DealBook.

That’s significantly lower than the $70 billion figure given to investors last month. That was not accurate, according to the OpenAI spokesperson. (The Financial Times first reported details of the discrepancy.)

The revision tanked A.I. stocks. Shares in Nvidia, Oracle and Microsoft sank on yesterday’s news.

This highlights the interconnectedness — and the potential fragility — of the A.I. boom, much of whose fortune rides on the continued success of OpenAI and Anthropic.

It also underscores the risks posed by basing investment decisions on pro forma revenue measures. Investors are increasingly turning to data from companies like the market intelligence firm Sensor Tower and the billing platform Ramp to help calculate their own financial models.

But those efforts could also lead to large discrepancies between public perception and actual reality.

And then there are the safety questions. Jacob Coxon, a former Anthropic researcher who has since accused leading labs of not taking safety seriously enough, has ignited a new debate about the industry.

He’s “90 percent” certain that China has spies inside Anthropic and OpenAI, he said recently on the PBD Podcast.

His claim comes amid the intense A.I. rivalry between the U.S. and China. Remember that President Trump has dismissed calls to more tightly regulate American A.I. companies, urging them to innovate faster to stay ahead of Chinese rivals.

Anthropic and OpenAI are likely to push back on Coxon’s claims.

• Anthropic closely scrutinizes its personnel, restricts access to important technologies and monitors suspicious activity by employees, according to a person with knowledge of the company who wasn’t authorized to speak publicly. Anthropic doesn’t think there’s evidence to support Coxon’s claim, the person added.
• OpenAI revamped its security processes last summer, after claims emerged that Chinese rivals like DeepSeek were copying its models. That included stronger restrictions on employee access to new models and products and fingerprint access to sensitive office areas. The company also vets workers across their entire tenure, from when they apply for a job to when they leave, according to a person with knowledge of the protocols who wasn’t authorized to speak publicly.

In other A.I. news:

• Three former OpenAI safety employees said they had been fired for “prioritizing safety over the near-term interests of OpenAI as a corporation.”
• SoftBank is reportedly seeking up to $100 billion from Middle Eastern investors to finance more bets on A.I., according to The FT, citing unnamed sources.
• How fear of a fast-growing start-up, Instinct, that made an A.I. agent prodded Meta to quickly roll out Muse, a competing product.

High interest rates slow U.S. home purchases. The trickle-down effects of borrowing costs — the average 30-year fixed-rate mortgage rose to 7.4 percent, the highest since November 2023 — are beginning to show. Sales of existing homes slipped 1.2 percent in August from the year before, a drop that economists at Zillow expect to increase to 3.5 percent in the fourth quarter. Some buyers are using high rates as leverage to demand price cuts.

Oil prices rise on more attacks in the Middle East. Brent crude, the international benchmark for oil, traded around $103 today after tankers were struck near Qatar and the United Arab Emirates. And Iranian-backed Houthi rebels in Yemen claimed credit for deadly attacks on Riyadh’s airport that caused the cancellation of scores of flights.

Goldman Sachs prepares a huge payday for its top executives. About 20 leaders at the Wall Street giant are expected to receive equity awards worth more than $500 million combined from a so-called Shareholder Value Creation Award, Bloomberg reported, citing unnamed sources. (David Solomon, Goldman’s C.E.O., is expected to collect about $100 million.) The bonuses come after the bank set a Wall Street record for stock-trading income.

Joe Rogan signs a big new deal with Spotify. The podcast host renewed his contract with the streaming service for about $250 million, The Wall Street Journal reports, citing unnamed sources. Rogan’s show remains the most popular podcast in the U.S.; he initially joined Spotify in 2020 with a $100 million contract.

M.&A. speculation gives Starbucks investors heartburn

Shares in the quick-service restaurant chain Chipotle surged yesterday on a report that it had drawn takeover interest from an unlikely source: Starbucks.

Combining the two would be the biggest acquisition ever in the restaurant business. (Chipotle’s market value is about $41 billion.) But the prospect of such a move drew sharp scrutiny on Wall Street.

The news: Starbucks has explored buying Chipotle, including by working with advisers on a bid in recent months, according to The Financial Times, which cited unnamed sources.

Semafor previously reported that Chipotle had hired bankers to fend off a potential takeover bid or activist investor campaign and that Wall Street had been speculating that Starbucks would make a run at the burrito chain.

The FT report drove shares in Chipotle up 6 percent yesterday; they had been down about 20 percent for the year. Shares in Starbucks initially fell as much as 6.7 percent before recovering.

Worth noting: Brian Niccol, Starbucks’s C.E.O. of six months, came over from Chipotle — and still lives in the Mexican food chain’s home base, Newport Beach, Calif.

How receptive are investors and corporate boards to big-ticket M.&A.? In the first half of the year, they were still interested: The value of announced deals during the period hit $2.77 trillion, up 48 percent year on year. Nearly half of that came from transactions valued at $10 billion or more.

Dealmakers say that companies are still searching for ways to grow, and sometimes M.&A. is the only way to do that. But rising borrowing costs are starting to weigh on merger activity, based on activity in the third quarter.

What would a deal accomplish? While Semafor speculated that a union could allow the companies to combine their real estate and back-office operations, analysts were skeptical. Sharon Zackfia, an analyst at the investment bank William Blair, said the potential deal had “no obvious revenue synergies.”

A run at Chipotle might exacerbate investor worries that Starbucks has limited growth potential, she added, and that the coffee chain’s turnaround effort under Niccol might be losing steam.

The prospects of a deal offer are uncertain. Starbucks said in a statement, “Our team is laser-focused on executing our Back to Starbucks strategy.”

QUOTE OF THE DAY

“This will sound super crazy, but I see a path to SpaceX being worth orders of magnitude more than the current Earth economy.”

Elon Musk, SpaceX’s C.E.O., predicting a huge increase in the valuation of his rockets-and-artificial-intelligence company, shortly after it struck an $8 billion deal to buy wireless spectrum.

Shares of the three big U.S. telecom companies — T-Mobile US, Verizon and AT&T — each tumbled sharply in postmarket trading on the news.

Talking A.I. with the C.E.O. of McKinsey

In this recurring feature, we ask a leader how he or she uses artificial intelligence. This week, Bob Sternfels, who leads the consulting firm McKinsey, told Sarah Kessler why the company was hiring more junior associates who worked in retail as teenagers. The interview has been condensed and edited.

How do you personally use A.I.?

I set out about six months ago to carve out a dedicated hour a week to learn on A.I. I’ve had all sorts of teachers, from our deepest technologists to, recently, I went to one of our offices and met with three brand-new business analysts.

One agent I built is called Contra. Any talk I’m giving, I give it to Contra and say: What am I missing? What’s the other argument to this?

How has A.I. changed your business?

We’re arming all of our consultants with a host of tools. It’s making them a lot faster.

One of the bigger issues I face is how to get the more senior folks, the partners and senior partners, to understand that their teams now have tools that we never had.

Has A.I. changed what skills you hire for?

We want folks who are better at novel creativity. We’ve started to widen the degree profiles we’re looking at in art, music, history. We have a novel problem-solving test, and some of those degrees do better.

We’re also looking for an ability to learn new things as opposed to just having mastered the subject that you studied. So we’ve created some simulations where it’s impossible for you to have any pattern recognition. And we look at how well you pick up clues along the way and learn. What we’re finding is there’s no correlation to degree type.

What kind of experience matters?

There’s more of a premium on working with other people. Were you successful in a team sport somewhere along the way? That’s one marker.

The other marker that I loved is, if you worked in retail as a teenager, it turns out that you don’t have positional authority. You have to deal with people. It actually is a good skill to have later in life.

Deals

• Firmus, an Australian data center operator backed by Nvidia, withdrew plans to go public, citing market volatility; it reportedly may raise $3 billion from private investors instead. (FT, Bloomberg)
• Apple is said to be replacing its head of M.&A., Adrian Perica, with Steve Smith, a longtime lieutenant to its new C.E.O., John Ternus. (Bloomberg)

Politics, policy and regulation

• Microsoft was suspended from using the H-1B visa program for foreign skilled workers after what Vice President JD Vance described as abuse of the system. (NYT)
• Why investors are worried about France’s potential debt crisis. (NYT)
• American Express was fined $350 million by the Office of the Comptroller of the Currency for what the regulator said were “critical deficiencies” in its anti-money-laundering program. (FT)

Best of the rest

• John Urschel once played for the Baltimore Ravens. Now he’s a tenure-track professor at M.I.T. who may have made a big mathematics breakthrough. (WaPo)
• “Rogue Pilots Are a Growing Safety Threat — and No One Knows How to Stop Them” (WSJ)

Thanks for reading! We’ll see you tomorrow.

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