OpenAI Just Signaled It Might Delay Its IPO. AI Stocks Are Tumbling. Is the Bubble Bursting?

Artificial intelligence (AI) and chip stocks were sliding again Friday, and this time the spark came from a company that isn't even public yet. Reports surfaced that OpenAI, the maker of ChatGPT, is leaning toward delaying its initial public offering (IPO) until 2027. The company's advisors reportedly laid out two paths: wait until 2027 and chase a valuation of about $1 trillion, or go public sooner at a lower price. CEO Sam Altman reportedly rejected any cut to that trillion-dollar target.

The news rippled straight into chip stocks. Nvidia (NASDAQ: NVDA), one of the world's most valuable companies and the clearest proxy for AI spending, slipped about 1.5% as of this writing, while Advanced Micro Devices, Broadcom, and a swath of other semiconductor names fell further. It capped a rough stretch for the group -- the Nasdaq Composite had its worst day in more than a year earlier this month as chip stocks sold off hard.

So why would a private company's IPO timing rattle the businesses actually selling the picks and shovels of the AI boom? And does it mean the bubble some investors keep warning about is finally bursting?

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Why OpenAI's timeline matters to chipmakers

OpenAI may be private, but it sits at the center of the AI build-out. The company has signed an extraordinary string of supply deals that underpin much of the industry's expected demand. It agreed to deploy 10 gigawatts of Nvidia systems, with Nvidia planning to invest up to $100 billion in OpenAI along the way. It struck a separate deal for 6 gigawatts of chips from AMD. And it has reportedly committed to roughly $300 billion with Oracle for cloud computing capacity, while developing its own custom chips with Broadcom.

Add it all up, and OpenAI has reportedly targeted something on the order of $600 billion in future computing capacity. That is a staggering sum for a company generating a reported $25 billion-plus in annualized revenue -- and one that isn't yet profitable. OpenAI's own chief financial officer, Sarah Friar, has reportedly warned colleagues that the company could struggle to pay for all that compute if revenue growth slows.

This is why the IPO chatter matters.

An IPO is one of the cleaner ways for OpenAI to raise the enormous sums its commitments require. So when reports suggest one of the biggest buyers in AI is hesitating to tap public markets -- partly because of recent volatility in tech stocks -- some investors may start to question how durable all that promised spending is.

The bearish takeaway here is straightforward: If demand for AI computing rests on a handful of richly valued, cash-burning customers, then any wobble in their finances or willingness to spend could hit chipmakers hard. The advisors reportedly urging OpenAI to wait pointed to just this sort of risk, citing the rocky debut of SpaceX, which went public this month in the largest IPO ever but has since slid well off its early highs.

Is the bubble bursting?

That said, there's a calmer way to read the same news.

A delayed IPO is likely more of a decision about timing and price -- not a sign that demand is collapsing. The supply deals are already signed. And the chipmakers' most recent results show demand still booming, not fading. In its latest quarter, Nvidia grew revenue 85% year over year to $81.6 billion, with its data center business -- the heart of the AI trade -- up 92% to $75.2 billion.

In other words, Altman holding out for a $1 trillion valuation looks more like confidence than distress.

Still, even after this month's sell-off, the AI leaders trade at premium valuations that bake in years of heavy spending, leaving little cushion if that spending slows. Nvidia alone is worth about $4.7 trillion. A valuation like that demands that the build-out keeps compounding -- which, in turn, demands that buyers like OpenAI keep writing enormous checks.

So is this the bubble bursting?

I don't think so -- at least not yet. The signed commitments and surging chip demand suggest the AI build-out still has serious momentum. But Friday's slide is a useful reminder of how much of that spending traces back to a small group of capital-hungry buyers, with a still-private, unprofitable OpenAI at the center. For now, I'd watch the spending commitments themselves, not the IPO calendar, for the first genuine crack.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, Nvidia, and Oracle. The Motley Fool has a disclosure policy.