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Greetings!
Before we get to what’s coming this week, let’s take a moment to honor the company that has honed the power of magical thinking. That would be OpenAI, whose latest long term revenue and profit projections we reported on Friday night here. The most important element of the report was that in 2025, the cost of running AI models quadrupled, so the company’s gross margin fell to 33%, which is below the 46% it had expected. Whoa!
True, OpenAI’s revenue was a tad higher than it had projected—$13.1 billion—but if OpenAI was a regular company reporting its earnings, the worse than expected gross margin wouldn’t be treated well by the market. Nor would the fact that the company projected it would burn more than twice as much cash through 2030 as it had previously projected. Investors would be dumping the stock! But then, OpenAI is a private company, whose shares aren’t freely traded. And many investors have convinced themselves that OpenAI is a juggernaut and the profits will eventually come. But how exactly is that going to happen?
According to our report, OpenAI is projecting that threshold moment will come in 2030, when revenue grows by about $100 billion—54% over 2029’s topline—and its free cash flow swings from negative to positive by $90 billion. Baked into these assumptions is that training costs drop roughly $28 billion in 2030, fully offsetting a continued rise in the cost of operating the models, known as inference. Maybe it’s reasonable of OpenAI to assume the models won’t need so much training by that point but still, that arithmetic seems a little too convenient. You can understand why short seller Jim Chanos suggested on X on Friday night that “these five year AI forecasts are just guesses.”
This Week’s Earnings
Keep Wednesday free. Nvidia, Salesforce, Snowflake and Zoom are reporting January-quarter earnings this week—all, bizarrely, on the same midweek day. Nvidia is likely to post big numbers: Analysts expect it to report 67% higher revenue of $65.7 billion for the January quarter, according to S&P Global Market Intelligence. That growth rate is several percentage points faster than what it reported for the third quarter. For a company of Nvidia’s size, accelerating growth is not to be scoffed at! Investors might rethink Nvidia stock, which has stalled for several months.
Nvidia would normally be the most anticipated earnings report of the week, but that may not be the case this time. Worries that AI is dooming software have sent software stocks plunging 20% to 30% so far this year. (Cybersecurity stocks took a hit on Friday.) There’s no doubt those fears are a bit overblown. After all, established companies have a big edge over rivals in their existing relationships, which are hard for customers to discard. As Lead Edge Capital partner Evan Skorpen told The Information’s TITV on Friday, “If you ask large companies: ‘Hey, could you replace Workday with a cheaper version of Workday?’ they have no interest in doing that.” He noted that software is a tiny percentage of big companies’ operating expenses ,and big companies “have no interest in trying some vibe coded solution.”
Moreover, the older software firms are mostly incorporating new AI tools into their products. Let’s face it, businesses will take a couple of years at least to fully adopt these tools, so quarterly earnings reports right now give us just a taste of what’s happening. The impact varies. Salesforce, for instance, has begun breaking down the annualized revenue run rate it is generating from new AI products—its flagship, Agentforce, passed half a billion dollars in the third quarter, Salesforce reported in December. We’ll be watching for the updated figure this week. Snowflake, whose revenue is about one-tenth that of Salesforce, said in December its AI revenue run rate was $100 million. These are small beans for both companies but worth tracking.
As for Zoom, executives have talked up their ambitions to make the videoconferencing service an “AI-first platform” without yet giving any financial specifics. Zoom, though, is in a class of its own when it comes to software. As we all remember, it had a huge burst of growth during the pandemic, but since 2022 it has barely grown—increasing revenue by only 3% to 4% a year over the past three years. Notably, though, Zoom—whose stock has stagnated in recent years—has escaped the software as a service apocalypse. Its shares are up 4.5% so far this year.
Here’s a rundown of what analysts expect from each of the companies reporting this week, courtesy of S&P Global Market Intelligence.
Nvidia (Wednesday)
Revenue: $65.685 billion +67%
Earnings per share: $1.46 +64%
Salesforce (Wednesday):
Revenue: $11.18 billion +11.9%
EPS: $1.57 -10%
Snowflake (Wednesday)
Revenue: $1.255 billion +27%
EPS: (0.97) compared with (0.99)
Zoom (Wednesday)
Revenue: $1.233 billion +4%
EPS: 85 cents -27%
In Other News
• Shares of e-commerce stocks like Amazon and Shopify rose Friday after the Supreme Court struck down tariffs imposed by the Trump administration. Shopify shares were up more than 5% midday, and Amazon rose around 2%.
• Xbox CEO Phil Spencer and Xbox President Sarah Bond are both stepping down from their roles and leaving Microsoft, the company announced Friday. Spencer will be replaced by Asha Sharma, who was president of Microsoft’s CoreAI division, which makes AI tools for developers.
• President Donald Trump called on Netflix to kick former Biden administration official Susan Rice off its board, “or pay the consequences.” His comments came after Rice said on a podcast that if Democrats win control of the House of Representatives this fall “there will be an accountability agenda” where companies that broke the law will be “held accountable.” Trump’s threat could complicate Netflix’s hopes of winning regulatory approval for its purchase of Warner Bros. Discovery’s streaming operations and film studio.
• OpenAI CEO Sam Altman called the concept of putting data centers in space right now “ridiculous,” taking aim at rival Elon Musk’s argument for why he is taking the merged SpaceX-xAI public.
Friday on The Information’s TITV
Check out our latest episode of TITV in which we unpack software valuations on the basis of free cash flow multiples.
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