How OpenAI Will Shape the Stock Market to Start 2026
Here are four major developments I am watching for early next year.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
It is hard to believe but 2025 is coming to a rapid close.
While market returns have not been quite as robust as they were for investors in 2023 and 2024, it was another of robust gains for equities. Once again, the AI revolution was the primary driver of the rally pushing members of the Magnificent Seven like NVIDIA Corporation (NVDA) and Alphabet (GOOG) sharply higher. By most valuation metrics, the overall market is trading at extreme levels viewed from a historical lens. 2026 is also a year with midterms. And, as a recent post on the Daily Diary noted, midterm years consistently have had significant drawdowns in the 12 months leading up to these political events.
There are numerous things I am monitoring as 2026 commences. The U.S. just came off the longest federal government shutdown in American history. This will ding Q4 GDP growth that has averaged a robust 4% over the past two quarters. Unfortunately, there is a distinct possibility another government shutdown will be triggered at the end of January. This would be an inauspicious start to the New Year but would be a positive if cooler heads prevail and this can be avoided.
My beloved biotech sector has been en fuego of late with the State Street SPDR S&P Biotech ETF (XBI) up over 70% from its April lows. The rally over the past several months has been powered largely by a notable uptick in M&A activity. I would not be surprised to see another buyout or two in front of the huge JPM Healthcare confab in San Francisco in mid-January. However, unless M&A activity remains elevated, I expect the sector to see some overdue profit taking early in 2026. I have plenty of dry powder to take advantage of any pullback.
Almost all the profit growth over the past three years has been driven by the Magnificent Seven. In fact, annual earnings growth from the "S&P 493" has come in around 3% from 2023 to 2025. With the markets trading at current levels, investors need to see some considerable broadening of earnings growth. The good news is that bottom-up analyst projections from Factset sees profit growth from the S&P 493 in 2026 at just over 10%. I will be watching closely to see if this growth materializes.
Finally, what happens with OpenAI in the first half of 2026 is critical to market direction. The company has made commitments for future computing power for roughly 100 times its 2025 revenues. The company is bleeding cash and since Gemini 3 debuted, ChatGPT is starting to lose market share.
OpenAI is the linchpin to the entire AI ecosystem and tech giants like Oracle (ORCL) are spending tens of billions of dollars to build capacity to fulfill deals to supply OpenAI with computing capacity. The CEO of OpenAI recently called for a "code red" to refocus the company on improving ChatGPT core capabilities. This could delay the monetization efforts of the firm’s vast consumer base. OpenAI needs to have a large and successful capital raise to address funding concerns in the first half and reassure the market it will be able to fulfill its massive commitments. Any setback on this front would be devastating to market sentiment, in my opinion.
And those are some of the core items I will be watching early in 2026. After three years of outsized gains, investors should pare back their expectations in the coming year. It feels like a much bumpier ride ahead.
At the time of publication, Jensen was long XBI.
