After weeks of rumors, OpenAI has finally closed a $6.6 billion investment round, valuing the company at $157 billion. This figure consolidates it as one of the most valuable startups in the world.
Why it matters. This capital boost shows investors’ confidence in OpenAI’s potential. Still, it also leaves most of those who have invested in it wondering about the return on their investment.
The current situation:
- Microsoft and Nvidia are the only investors seeing tangible, immediate earnings.
- All other companies are betting on future, uncertain profits.
- OpenAI offers shares in future returns but not equity in the company.
Going deeper. Microsoft is strengthening its position in AI by integrating OpenAI’s technology into its products. Nvidia is ensuring demand for its GPUs, which dominate the market.
- Both companies make and will continue to make immediate profits regardless of OpenAI’s financial future.
- The other players are investing in a promise of future profits, not equity. They depend on OpenAI becoming profitable, which seems a long way off.
However, Microsoft is offering its cloud service for OpenAI at a heavily discounted price of about $1.30 per GPU/hour. This is three times less than its usual cost.
The context. OpenAI isn’t just in a race against its competitors. Its primary contest is against its losses. In 2023, it raised $1.3 billion, but its expenses exceeded $5 billion. The numbers:
- Projected 2024 revenue: $3.6 billion.
- Projected revenue for 2025: $11.6 billion.
- Projected losses through 2024: more than $5 billion.
The paradox. Although OpenAI projects revenues of $11.6 billion next year, this growth can be a double-edged sword.
- On one hand, the more users it has, the higher the infrastructure costs.
- On the other hand, increased revenue may not translate into profitability if costs escalate proportionately.
OpenAI’s transformation into a for-profit company may help with ROI but doesn’t guarantee profitability.
What’s at stake?
- For OpenAI: The race to monetize before the box burns.
- For all investors (except Microsoft and Nvidia): Faith that OpenAI will be profitable despite its huge losses.
- For AI as an industry: A new precedent of massive investment in a not-yet-profitable technology.
Microsoft and Nvidia are ensuring they get immediate profits, but the rest of the investors are making a risky bet. Their success depends on OpenAI optimizing its financial structure until it becomes profitable. It sounds like a challenge as big as the development of new models itself—or more.
Image | Aeroqube (Flickr)
Related | OpenAI Makes Its Biggest Goal of the Year a Reality, Closes $6.6 Billion Investment Round
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