In this month’s market memo, we break down the headline release of GPT-5, reactions from the market and ecosystem, and what the launch signals for OpenAI, LLM development, and users. We also share our perspective on software earnings season and where we see signs of reacceleration across the industry.
Here’s a preview:
- GPT-5 launch reaction: OpenAI’s new flagship model was met with muted enthusiasm, to say the least. Despite delivering improvements in coding, multi-modality, and user experience, the reception underscores the risk of inflated expectations.
- Strategic priorities: GPT-5 highlights OpenAI’s twin focus on cementing ChatGPT as the breakout consumer product of this generation (now at 700M+ WAU) and reclaiming developer mindshare in coding, where Anthropic has gained traction.
- State of LLMs: GPT-5 is better, but not a breakthrough—progress looks incremental and raises questions about diminishing returns from scaling, even as new data sources and Nvidia’s Blackwell-powered superclusters hold potential for fresh gains.
- Market reaction: AI-related stocks retreated post-launch, compounded by investor skepticism and fresh data points like MIT’s report that 95% of internal AI pilots fail. This marks the third “AI top call” in the past year, but progress continues across open-weight models, coding agents, and multimodal systems.
- Software rebound: Public software companies showed signs of reacceleration in Q2, with median 2025 growth estimates revised upward to 11.8% (from 10.6% after Q1), 90% beating revenue expectations, and net new ARR spiking to its second-highest level since early 2023.
- AI’s impact on earnings: Companies are beginning to report tangible uplift from AI in premium services, adjacencies, and buyer demand. Hyperscalers continue to face capacity constraints, signaling that demand still outpaces supply.
- Search disruption: AI is reshaping organic search traffic for PLG-driven companies while fueling new opportunities in “Generative Engine Optimization” and alternative channels.