OpenAI isn't too big to fail. It's bigger.

The big picture: OpenAI is confronting rising costs, a bruising talent war and uncertainty about its consumer strategy.

• Altman is refocusing the company on improving ChatGPT and the new models powering it, the Wall Street Journal reports.

Between the lines: A technical failure is unlikely, as the company keeps making progress with ChatGPT in the face of competitive challenges.

• But increasingly complex interlocking deals among a small group of companies, plus the impact of a weakening labor market, are starting to rattle investors.
• The mere suggestion that some data centers Oracle is building for OpenAI might be delayed was enough to move tech stocks Friday.

What they're saying: OpenAI's individual role in the greater economy "feels like it should be inconsequential," venture capitalist and MIT research fellow Paul Kedrosky tells Axios. "But I think that's a gross misunderstanding of the nature of what's happening in the market."

• An OpenAI crisis could trigger a significant disruption, Kedrosky says: "This whole interlocking structure just freezes solid."

State of play: If OpenAI falters, "the foundations for the entire [AI] sector become fragile," Daleep Singh, former deputy national security advisor and current head of global macroeconomic research at PGIM, tells Axios. "You have to think about the financial contagion."

• "There's a multiplier on OpenAI failure that would cascade through the ecosystem," he says.
• Singh argues that Microsoft and Meta are rushing to buy chips to avoid being left behind. So if OpenAI stumbles, "the FOMO of buying chips vanishes."

How it might work: A major reduction in chip orders would have real impacts on the billions in capital expenditures lifting U.S. real GDP growth this year. "Maybe as much as 50% of that grinds to a halt," per Singh.

• Those Nvidia chips are serving as collateral for billions of dollars of loans. "If the demand for those chips drops, that means the value of the collateral also declines," Singh says.
• "If those loans go bad, then lenders are holding billions of dollars of assets that are no longer worth what they once were."

The intrigue: Kedrosky says OpenAI's dominance is partly due to sentiment. OpenAI and ChatGPT introduced the idea of AI to the masses, both users and investors.

• Now it's part of the zeitgeist, entrenched in all of our lives, even those who rarely use it.

Zoom out: Its size and deep financial connections to other companies have raised the specter of OpenAI being "too big to fail."

• OpenAI's CFO Sarah Friar's misunderstood suggestion of a federal backstop last month didn't help.
• "Too big to fail implies that the government would not allow the company to go under, because it would take down the economy with it, and the economic and political consequences would be too large to bear," Singh says.
• Singh doesn't believe that the company is too big to fail, because he doesn't think the government would step in with a backstop.

The other side: Altman has flatly denied having or wanting a government backstop.

• "If we screw up and can't fix it, we should fail, and other companies will continue on doing good work and servicing customers. That's how capitalism works and the ecosystem and economy would be fine," Altman wrote on X last month.
• "Everything we see gives us confidence in our future trajectory," OpenAI spokesperson Steve Sharpe told Axios. He noted the company's strong financial position and long list of investors, including Khosla Ventures, Thrive Capital, a16z, Sequoia Capital, SoftBank and others.