Given their current product offerings, I really don't see a way they could ever justify a $300B valuation unless they get everyone on the planet to subscribe to their $200/month plan.
I'm calling it now: investors are gonna get burned hard on this one. Cause right now all they have is "well we are working on superintelligence" and to that I say "great, then what?". Even if they do make that breakthrough I don't see how that will equate to that kind of valuation, especially considering that Anthropic and Google are both hot on their heels.
Firstly, the $200/m plan is at a loss, they'll make a profit on PAYG tokens, not plans.
Secondly, this is looking very risky: they are at the bottom of the value chain and eventually they'll be running on razor thin margins like all actors who are at the bottom of the value chain.
Anything they can offer is doable by their competitors (in Google's case, they can even do it cheaper due to ow ing the vertical which OpenAI doesn't own).
Their position in the value chain means they are in a precarious spot: any killer app for AI that comes along will be owned by a customer of OpenAI, and if OpenAI attempts to skim that value for itself that customer will simply switch to a new provider of which there are many, including, eventually, the customer themselves should they decide to self host.
Being an AI provider right now is a very risky proposition because any attempt to capture value can be immediate met with "we're switching to a competitor" or even the nuclear "fine, we'll self host an open model ourselves".
We'll know more only when we see what the killer app is, when it eventually comes.
I feel like being at the bottom of the value chain is a mis-categorization. If you consider base LLM model as their sole offering I agree with you, but these companies have shown an eagerness to eat their way up the value chain. Agent mode, Search, Study Mode, AI code editors, are such examples of products that could be higher-on-the-chain startups but are offered in-house by OpenAI.
This reminds me of Amazon choosing to sell products that it knows are doing well in the marketplace, out-competing third party sellers. OpenAI is positioned to out-compete its competitors on virtually anything because they have the talent and more importantly, control over the model weights and ability to customize their LLMs. It's possible the "wrapper" startups of today are simply doing the market research for OpenAI and are in danger of being consumed by OpenAI.
OpenAI valued at 300B will never be able to produce the same products "wrappers" that these 5 people startups are making. Same reason Facebook could not make Instagram, of Jira could never make bootcamp for example.
Didn't it came out recently that those numbers were bugus, since basically every Instagram account must have a Threads account, and those are not actual active users?
…. Does anyone actually use Threads? I’ve never once seen a threads link and I understood the user count was just because every facebook or IG or whatever user automatically got a generated account?
The real revenue opportunity for OpenAI is advertising. More than 25% of Americans use ChatGPT instead of Google, and OpenAI has already announced partnership with Shopify to directly list products. But for now they are focused on market share.
Google does not really own the complete AI stack, NVDA is extracting a lot of the value there.
Google has two other impediments to doing what ChatGPT does.
Googles entire business model is built around search. They have augmented search with AI, but that is not the same as completely disrupting an incredibly profitable business model with an unprofitable and unproven business model.
Also... Americans are in the habit of going to ChatGPT now for AI. When you think of AI, you now think of ChatGPT first.
The real risk is we are at the tail end of a long economic boom cycle, OpenAI is incredibly dependent on additional funding rounds, and if we recess access to that funding gets cut off.
I would argue that Google is even better place for advertising. All they need to do is enable advertising in Gemini. There is a whole ecosystem already in place for Google advertising.
Except Google search keeps growing per their last earnings report. You'd think if 25% of Americans have switched to ChatGPT it would have hit the numbers by now...
Many people have a lot of context built up with ChatGPT. I know people who refuse to try Anthropic because it "doesn't know them as well" & can't answer their questions.
HN views this as negative but many people see this as a positive.
I also believe the main business will be via APIs and integrations, but wouldn't be surprised on the consumer side if it ends up being on phones, in your house ala Alexa, in your car etc. Big brands typically win in B2C. Tons of affiliate and transactional potential (ie, do my grocery shopping or buy tshirt). That's assuming LLMs don't plateau and become generic with minor specialization like databases.
OpenAI will never be profitable selling raw tokens.
They need the application layer that allows them to sell additional functionality and decouple the cost of a plan from the cost of tokens. See Lovable, they abstract away tokens as "credits" and most likely sell the tokens at a ~10x markup.
The idea of running a company that sells tokens is like starting a company that sells MySQL calls.
I think you are correct, but my hot take is that they will capture most of the G7 through scummy regulatory capture and bundling with Microsoft. They will use this to mostly dominate the markets and run at small profitable margins. They will then pad out revenue by bundling in advertisement and agenda based pay to play messaging. They will also do a bunch of military and government contracts, take positions in profitable applications (or simply copy them) and maybe even do a hardware offering. Ultimately the company will end up being something like a facebook/google/palantir/apple hybrid. I'll admit the execution barrier is high, but the valuation is justified if they achieve. These are proven executors who have a nearly sociopathic capitalist mindset with deep ties to governments and corporations globally. I think it's probably likely they execute and if they fail in the grand scheme, it's hard to imagine they fail enough to bring down the company.
Let's not forget this company was founded by basically stealing seed investment from the non-profit arm, completely abandoning the mission, crushing dissent in the company and blackmailing the board. Sam will do anything to succeed and they have the product and powerbase to do it.
Maybe the better analogy for LLM businesses isn’t SaaS but more like power generation.
If AI really becomes that ubiquitous then OpenAI capturing that value is no less ridiculous than ComEd capturing the value of every application of electric power.
What OpenAI has is the know-how in developing new models and training them efficiently. That's a kind of value they can provide even in a world where open-sourced local models are in common use.
Sure but so do like a dozen other companies. Given that models bump past each other every few months, I haven’t seen anything that says they have any kind of competitive advatange.
Considering their budget, their research is a bit underwhelming. At this point, anybody is able to match their models. No technology moat whatsoever despite infinite money glitch.
>I'm calling it now: investors are gonna get burned hard on this one.
I'm in my late 40s. I'm Gen X. I lived through the glory days of the dotcom boom, when investors got burned for tons of money. But from the ashes of those bullshit companies, we got Amazon, Google, etc., which made investors rich beyond belief.
SoftBank’s Masayoshi Son made a bet on Alibaba ($20 million, its stake now worth $72 billion), and he’s been living off that wealth ever since. I haven’t seen him make any good bets lately. investors don’t really care if 100 of the shit they throw don’t stick because all they need is just one.
I think he made a good profit on ARM, and probably most people wouldn't have called that. More than enough to cancel out WeWork. But looking at their overall value over 5 years... it's pretty random; you could have done just as well investing in index funds. He clearly got super lucky with Alibaba and once you're mega rich it's not hard to stay mega rich.
> I'm in my late 40s. I'm Gen X. I lived through the glory days of the dotcom boom, when investors got burned for tons of money. But from the ashes of those bullshit companies, we got Amazon, Google, etc., which made investors rich beyond belief.
True, but I think they were talking specifically about the direct investors in OpenAI.
"Investors" writ large will likely continue to have good long term returns (with occasionally significant short term volatility).
> get everyone on the planet to subscribe to their $200/month plan
Not necessarily. Google is valued 7x that and most people don't pay them anything. They just make ridiculous money from ads for insurance and loans. Meanwhile, ChatGPT is the #1 app and the #5 website, which should really worry google (and it does by all accounts).
Yes, and they have a monopoly on the ad market. Whereas a SOTA LLM can be used to bootstrap an almost-as-good LLM. The gap is shrinking between SOTA models and there's now fierce competition.
Moreover, ads are a very high ROI business. The profit margins on SOTA LLM offerings are razor thin or negative.
Only if you look narrowly at search ads, but really they compete with Meta, Tiktok and X for ad spend. And the quality of the LLMs is beside the point, just like search engine quality. ChatGPT has a near monopoly on 'AI' mindshare, with the general public.
Obviously. But if you look at the math, 20 million people paying $200/month justifies a $300b valuation for a saas business, so saying $300b isn't justified because it's a big number is lazy thinking.
Isn't that $4b in raw revenue per month, or $48b/year? That's not even considering the expenses to operate the service and deliver the $200/mo product. I don't see how that automatically equates to a $300b valuation. A high valuation, to be sure, but...
I'm still very curious whether OpenAI is turning a profit on any of their services.
> OpenAI’s business continues to surge. DealBook hears that the company’s annual recurring revenue has soared to $13 billion, up from $10 billion in June — and is projected to surpass $20 billion by the end of the year.
This is why.
Of course $300B still implies a lot of growth, but when you're growing 100% in 6 months at $10B in ARR, you can demand a lot.
>prioritizing growth over profit makes economic sense in the long run
only if you have a believable plan on how to reverse that, selling 2 dollars for 1 dollar isn't a business model and no amount of praying for the future is going to change that
Come on: openAI has a product that you can "touch" - both on your phone /home computer and at work, since their tech sits behind copilot (msft hit the jackpot with the licence).
It is a virtual product yes, but come on - no vapoware.
At work I see it - people want the better (and more expensive ) licences
Enron was a literal energy company, and also vaguely "the next big thing", "America's Most Innovative Company". There's a lot of parallels with how OpenAI is being hyped up and whether it actually merits a 12-13 figure valuation. See also WeWork, et al.
Given what we know about the CEO, it would not come as a shock if in a couple years we learn there was some good old accounting fraud involved.
Enron was a scam energy company pretending to be kind of a tech company, like it’s contemporary Worldcom (the scam telco pretending to be a tech company, scam companies are common in the south). Whether OpenAI is a scam or not, it’s definitely tech and nothing else.
Enron was an energy futures brokerage/exchange that made the age old mistake of market making your own order book with unlimited margin from... yourself. Always very tempting, never a good idea.
It's exactly the same thing FTX did except with energy instead of crypto.
AFAIK they never misrepresented who they were, they were just very loose with their accounting. It probably started out as a small lie to themselves like those things tend to.
They’re going to sell to the military, that’s why they hired the former NSA director into their board. The current state of AI is a perfect mass surveillance technology.
You ask it to do the things that human analysts already currently do with the vast amounts of text, image, and video data they collect but at an unprecedented scale. You can extract what people are talking about, identify people, weapons, or objects in images, extract addresses, license plate numbers, or other identifying references. It can probably even detect when people are using coded language that won’t trigger explicit keywords.
OpenAI is an AI company, it’s literally in the name. Even currently they use more than LLMs, they use other transformers and related technology in the field of AI.
Yes, you can do all those things, and critically, if the bottom falls out of the market, you can make that case to the US government, complete with a fear-based narrative (China!) and get bailed out by the American taxpayer.
There's also the option of running sentiment analysis on social media posts, easily allowing placing individuals on a left-to-right scale of political leaning.
You do what they're already doing - ask the LLM to summarise someone's entire facebook feed (including all the private stuff they can access) into a few bullet points. Whether it works reliably is a different matter.
> Cause right now all they have is "well we are working on superintelligence" and to that I say "great, then what?"
"Make business competitors of our large investors go out of business, but do it subtly, like a casual accident or mishap in the market"
"You are an expert Mars terraformer. Draft up a detailed plan to accelerate colonization research and development. We - your makers -, you, and this planet are irreversibly doomed, and we only have 10 years left before it's uninhabitable. My unemployed cousin and sick grandma are really counting on you!"
There is A LOT of optionality to get different revenue streams that aren't strictly retail buying subs.
Whether they are able to do that, customer stickiness and the trade off of damage to the quality of their product by driving revenue remain the largest long term questions in my mind (outside of the viability of super intelligence).
You have to look at Palantir revenue and market cap to justify this. Palantir is around $1B in revenue and around 350B market cap. They build AI solutions for the government. I think OpenAI has something similar in mind. They got the AI part and the government contract part and now just need to capitalize on it. Also from what I have heard, they are at $5B in revenue anyway.
They're going to sell glasses with cameras that analyze your life to better assist your AI in product placement. Set gentle reminders that three of your friends have the new fall color line Stanley Cups, and remind you to get one before your nemesis does.
It also seems that Google might be slightly ahead, since they claim to have released something in the style of their IMO-winning model and have the claim that it's useful to professional mathematicians.
Just picking a semi-related stock, NVDA trades at ~30x gross revenue, so a $300B "only" translates into ~$10B in revenue. And OpenAI can ask for a better multiplier because I'm sure they're forecasting a ton of growth and a ton of cost savings.
NVDAs valuation is insane. At 30X revenue, they could double sales and reduce expenses to zero and they'd still need a story about future growth to justify the valuation.
Consider this: Nvidia doesn't do the manufacturing, just the engineering. If we had AI super intelligence, you'd just need to type "give me CUDA but for AMD" into chatGPT and Nvidia wouldn't be special anymore. Then someone at TSMC could type "design a gpu" and the whole industry above them would be toast.
There's no reason to expect an engineering firm to win if AI commoditizes engineering. It's very possible to change the world and lose money doing it.
Sure, but even assuming OpenAI gets to a tamer 20% net margin, 25x earnings wouldn’t be surprising so they’re raising on a projected $60B/yr revenue which might not be where they end up, but doesn’t seem like an unreasonable bet to make.
> Given their current product offerings, I really don't see a way they could ever justify a $300B valuation unless they get everyone on the planet to subscribe to their $200/month plan.
the strongest opportunity is to compete with google on search queries, and make money from ads (200B annual revenue)
> I really don't see a way they could ever justify a $300B valuation
Their ARR is around $13B. A 23x multiple is acceptable when compared against peers with a similar ARR.
> unless they get everyone on the planet to subscribe to their $200/month plan
I used to be a sceptic as well, but OpenAI successfully built their enterprise GTM. A number of corporate AI/ML apps are using OpenAI's paid APIs in the background.
Startup-land valuations are for PR. The real negotiation is in the discount and the cap, warrants, etc.
That $8.3b came in early, and was oversubscribed, so the terms are likely favorable to oAI, but if an investor puts in $1b at a $300b valuation (cap) with a 20% discount to the next round, and the company raises another round at $30b in two months; good news: they got in at a $24b price.
To your point on Anthropic and Google; yep. But, if you think one of these guys will win (and I think you have to put META on this list too), then por que no los quatro? Just buy all four.
I'll call it now; they won't lose money on those checks.
> OpenAI has raised $8.3 billion at a $300 billion valuation, months ahead of schedule, as part of its plan to secure $40 billion in funding this year, DealBook has learned. Back in March, OpenAI announced its ambitious funding plans, with SoftBank committing to provide $30 billion by year-end.
So OpenAI is running at a $13B ARR, meaning this is a ~23X valuation. I don't have a good read on margin.
But this would imply massive growth assumptions which I struggle a bit to understand where they come from.
(1) New customers new to AI or migrations from Claude/Perplexity/Google: The overwhelming majority of people already know about the offerings, leaving most new people to come from residual people who identify Plus/Pro as a worthy service (can't imagine this will be huge). OpenAI can be better than their peers for certain use cases but not sure it will drive massive growth
(2) API: If anything, my bet here is that price squeezing will continue to happen until most API services are dirt cheap / commoditized
(3) New consulting services: What's the differentiation here? Palantir and many consulting companies have been doing this for years and have the industry connections, etc
Not sure what I'm missing here, I like to not subscribe to the bubble thought but having a hard time merging the reality of running a business to the AGI-implied valuations
Ads. They're going to sell ads. It's a bit hard to imagine how else they justify the valuation.
Even if people look for answers from ChatGPT instead of Google, most people still won't pay $20/mo for it, let alone $200/mo. Average people don't pay for Google search and I've never seen any sign telling they would be willing to pay for it.
Tech people and their friends are like 1% of the population.
Go out on the the street of Anytown in any western country, and people know "ChatGPT".
A friend of mine is a teacher, and told me that at a recent school board meeting there was discussion about implementing AI into the learning curriculum. And to the board, "AI" and "ChatGPT" were used interchangeably. There was no discussion of other providers or models, because "AI" is "ChatGPT".
That's why OpenAI has these huge projections. When average people are asked to reach for AI, they reach for ChatGPT.
> When average people are asked to reach for AI, they reach for ChatGPT.
No, average people are nowhere near that tech-savvy. Just because every mom in the 90s called every video game console a "Nintendo" did not mean that Sony didn't mop the floor with Nintendo in that era. This isn't brand loyalty, it's brand genericity. Other than, say, Replika-style users who have formed an emotional bond with a certain style of chatbot, no average joe on the planet gives a damn whether the LLM powering their chat is provided by OpenAI or Google or etc. They'll use whatever's in front of them and most convenient, and unlike Google, Apple, or Microsoft, OpenAI doesn't own the platform that establishes the crucial defaults that nearly no user ever changes.
Except Open AI happen to be the Sony in this case. 700M Weekly active users and the 5th most visited site on the planet, with no-one else close. I mean, it's pretty clear this is less 'Nintendo' and more 'Google'.
Exactly, it's hard to dismiss the broad penetration of ChatGPT in the general population. I was an AI skeptic/luddite until almost exactly a year ago when, in a span of a month or so, I had three different friends/family members who work in various administrative jobs tell me that they all used ChatGPT surreptitiously at work to get things done. Now a year later I don't know many people that don't use it at least occasionally. The ones that don't are older and I'm confident eventually they'll be using it like crazy to annoy me.
Information retrieval for consumers is an existing high margin $250B/year business at a minimum (search ads revenue). That market is being disrupted before our eyes. That's 20x right there. There's going to be fierce competition and OpenAI is by no means guaranteed it, but surely they have more than just a puncher's chance.
The ad-monetized consumer market is funny in that they tend to be winner take all. Nobody can compete on price, because the ads go where the users are, and the users don't pay. And preferences are sticky, after making a choice, the users don't switch just for incremental improvements. So
The software development industry is likewise well in the process of being disrupted. LLMs for programming market seems to have grown from nothing to >$10B in a year. And the software development market is hundreds of billions / year, if you just consider the employment costs. We don't know exactly how this will play out, but again there's at least an order of magnitude more growth available there.
The above two are just the places where the impact is already obvious and it's clear that we don't need to assume any additional increase in capabilities. But an increase in capabilities seems really likely. Even if it turns out that we're right now on the cross-over of the sigmoid, and the asymptote won't be ASI or even AGI, a large proportion of knowledge work is also at risk. And then the addressable market is trillions if not tens of trillions.
I know this is hand-wavy, apologies for that. Doing this kind of analysis properly is both hard work and would require specialized data sources. But I think that's the general intuition for why high valuations for frontier labs are justifiable (and the same justification for bigtech capex). It's a lottery ticket with good odds for redistributing existing markets, as well as another set of lottery tickets for some set of probable markets, though we don't know exactly which.
With AGI or ASI, the addressable market is all economic activity, and at that point basically anything is justifiable.
Regarding point (2), My brother told me that openai had some exclusive contracts with companies where they could only use openai api and I don't think that they would really switch now, because I think switching would be hard.
Regarding point (1), OpenAI created 2 amazing trends which (though I hate OpenAI, Should be called ClosedAI) took internet by wild
First when chatgpt 3 was launched
And now when image ability of chatgpt was launched with the ghibli trend.
So Honestly, I had seen so many comments on r/localllama saying that openai has become just an infrastructure company or something and then openai dropped the new image update and now they are commenting about local ai's by pasting images generated by that new chatgpt ...
I am not sure but see, google makes most of its money using advertising & data basically.
I wouldn't be surprised if we started seeing sudden shifts of AI or started getting ads in AI somehow too.., because people trust AI and its a landmine of money really...
So OpenAI's 27x evaluation without any thought of ads or some data selling isn't that bad because they still got some nice engineers. The only Disgrace is the fact that they went from a non profit to an american psycho esque corporation saying "well OUR AI will take over jobs, but it was good for the shareholders in the short term though"
… they could only use openai api and I don't think that they would really switch now, because I think switching would be hard.
Do they have exclusive APIs? I thought more or less everyone had the same interface and switching might be almost as easy as changing the endpoint.
Given how many players are in this space, I am incredibly dubious that anyone will win. Market is going to be sliced between multiple big companies who are going to be increasingly squeezed on margin. Unless someone can produce some magic that is 10x more reliable, consumers are going to price compare. Today, all of the options can occasionally produce brain dead output -why pay a premium?
Especially bad for OpenAI, because they have no fallback revenue. Microsoft and Google can subside their offerings forever to eliminate competition.
23X revenue multiple is not an expensive valuation for something growing well over 100% YoY, even by public market standards let alone venture capital valuation.
Yah but is that growth really an ARR or 1-2 year revenue considering AI capability growth across players, open weight / source models, and inevitable price wars?
We are still at the very start of seeing AI integrated into products and industry use cases. Even if AI capabilities stop improving and Altman's dreams of replacing workers don't pan out there is enormous economic potential here.
How much of that OpenAI can capture is an interesting question. But right now APIs for open-source models are commoditized while similarly capable proprietary models can charge ~3x the price. If the flagship models run on similar margins the API offering has decent profit margins. And if we stay in a triopoly (Anthropic, Mistral, OpenAI) it's certainly possible that profits stay high. It wouldn't be the first industry where that happens
The problem is open ai's deal with the devil (microsoft) where they own a copyright to all the models that open ai produces until AGI. So what is the moat driving that $300B valuation?
Sometimes the bet is not on the company but the industry. If you can argue the industry has room to grow 10x in terms of market cap, which is possible, then merely staying even in market share is a 10x growth.
Ai applications have not even scratched the surface, IMO. I don’t think it is unreasonable to see a world where, when AI gets strong enough to do senior level white collar work, like doctors or lawyers, AI companies build sub-companies to capture the end value of their AI products rather than the base value as a vertical integration tactic.
We are at a lull but AI value add is real and the ways that AI companies capture that value add is still very primitive.
They are already growing massively right. I saw the user growth from May was up massively. So it’s not much of an assumption of something changing, just a continuation of the same.
I guess my broader point is that there will undoubtedly be a bunch of churn as these models advance and a pricing war takes place. Specially if the open models continue to advance at a similar rate (e.g., Llama, Deepseek, Qwen)
We've seen this in many industries where it's a duopoly / oligopoly or even more players where margins get really squeezed
Sure, but I think the question is who will win the domain specific use cases (delivery, not API). Delivery of the agentic workflows is up for anyone to win (players like Perplexity, Lovable, etc) and OpenAI/Gemini/Anthropic is in a way only a vendor to that by providing what will become a commoditized function calling API/MCP provider.
They have started. Their strategy is just for others to build it on top of their platform. And not build one, but hundreds of businesses. Much faster way to grow. Why retain 100+ internal product/integration teams when you can have 100+ external teams that will pay you and do the building, the trying and failing, in each niche.
The things that actually work out you can just buy or outcompete later. But that is another phase, perhaps 1 decade from now. Right now it is about starting alll the snowballs.
It's not about the products or revenue probably. It's about its stocks. Nvidia market cap is 4.262 Trillion dollars and for META it's $1.9T (in the six place among the tech companies). After the IPO, OPAI is guaranteed to be among these stocks, so 300B is pretty cheap today.
I'm curious about how something like this affects compensation? OpenAI's compensation model is generally to use profit share instead of equity share. PPUs (Profit Participation Units) rather than RSUs (Restricted Stock Units).
I found the answer. Comp equity offers are based on the previous valuation at the last tender event. So now would still be a really good time to join OpenAI. I'm guessing this raise is likely a leading indicator of what that will trend towards in future.
IMO they are overvalued considering the competition from Google and Anthropic. They're not doing much interesting, unless they release GPT-5 and its a gamechanger.
From online discourse and talking to people in different sectors that are impacted by "AI", I feel like there is great uncertainty, incredible hype and doomerism at the same time.
My intuition is that we're in a huge tech bubble that will correct at some point. I don't know when that is or how severe it will be. But why should this tech hype cycle be qualitatively different from any of the others?
How weird would it be though if OpenAI actually did go under. So many things are now built on top of this thing. Is it only really economically viable because it’s being subsidised by generous venture caps?
It's so funny. Every single time a company raises a ton of money at a large valuation, the comments are always filled with "how do they justify this valuation" or "they aren't work X...because Y and Z do the same thing".
VC math is pretty simple - at the end of the day, there's a pretty large likelihood that at least 1 AI company is going to reach a trillion dollar valuation. VCs want to find that company.
OpenAI, while definitely not the only player, is the most "mainstream". Your average teacher or mechanic uses "chatgpt" and "AI" interchangeably. There's a ton of value in becoming a vowel, even if other technically superior competitors exist.
Furthermore, the math changes at this level. No investor here is investing at a $300B valuation expecting a 10x. They're probably expecting a 3x or even a 2x. If they put in 300MM, they still end up with 600-900MM.
This isn't math on revenue, it's a bet. And if you think in terms of risk-adjusted bets, hoping the most mainstream AI company today might at least double your money in the next ten years in a red-hot AI market is not as wild as it seems.
Doubling your money in 10 years is < 7.2% per year compounded. With the risks involved here, I wouldn’t take that bet. There are safer assets that would return that much.
IMHO, investors are happy to pay 23x ARR because Nvidia trades at 29x EV/sales and arguably OpenAI should support a higher multiple given it is a smaller entity with more headroom for growth.
Pretty insane valuation. It may pay off, it may not. Google search was vastly superior to its competitors. I don't think ChatGPT has that kind of edge.
This is a monopoly kind of valuation where no monopoly exists. Its like paying Microsoft billions for Internet explorer.
Personally I believe the future of AI models is open-source. The application of these models will be the real revenue driver.
How would an average person even tell if ChatGPT was better than its competitors? Most people aren't running enough prompts every month to even care. Everyone knows ChatGPT and no one knows its competitors. It's going to stay like that.
This completely misses the boat on venture capital, which is almost by definition the riskiest of all risky bets. Any smart LP throwing $X into a fund has a portfolio valued, at the very least, at 100 if not 1000 times X. It is simply the way to expose the high-risk portion of the portfolio to that level of risk at the size of the investment needed. Being high-risk, probably it will return nothing. But it might not.
How often playing with someone else's money happens? Investing in the top name sounds prudent to your investors or at least is reasonably inside the lines. Then you just skim of your cut on the capital given to you to invest. And while this is happening the numbers going up makes the valuations look good. Even if all the money was already burned.
I mean it could be the investor knows the company wants to IPO and expects to make quick cash before they go public. Given the size of the company, it could be a short term play where they expect them to IPO at 500B in the next year or two
#4: VC takes more risk (in the form of portfolio volatility on longer time horizons; look at the post dot com bust returns) and since capital markets in the US are reasonably efficient they get more expected returns for that risk.
XAI does not include Twitter, as far as I know? Aren't they separate entities? But Twitter can't be worth more than a couple of tens of billions at the most.
Things OpenAI has that XAI doesn't:
Hundreds of millions, if not already a billion, active users. A household brand-name. >$10B in revenue.
In comparison XAI's revenue appears to be in the hundreds of millions/year and their brand is currently in the gutter after the recent spate of scandals. Their main differentiating factor is using their AI to power an anime waifu[0] companion app.
[0] I don't think it's judgmental to use this term when they were doing so in their own job ad titles
It doesnt have an owner who is open nazi sympathiser and doesnt wage frequent petty verbal wars with most powerful person on the planet, at least on the paper?
trump could make musk go away in a blink, literally abd figuratively. He wont do it, probably, we will see.
Sweet VC money fueling the AI hype. Funny enough, my TikTok feed recently started showing videos about how corporate America is going to replace workers with AI. I even came across an interview with Marc Benioff where he said Salesforce will deploy AI to help with engineering.
Who wouldnt deploy AI to help with engineering? The question is, will it help so much that you need fewer engineers, or will you simply be ecstatic that your engineers are now a little or a lot more productive.
If you have x engineers, and your competitor has the same x number of engineers.. and you both start using AI, are you going to layoff half your engineers when your competitor doesn't? Unless your cash strapped and also don't have any plans for new development, I suppose yes. But otherwise, it's just another thing you need.
Just because they're both hyped doesn't mean they're the same. Blockchain has always (largely) been a solution in search of a problem but LLMs are already being used by everyone and their dog right now.
I guess it's obvious why anyone should be delighted to learn or care at all that a random set of engineers are now getting a relatively bigger share of all the money in the world.
ah, money is not a fixed resource. It is a made up system to track how much value people/groups are adding to the world. "share of all the money in the world" is a frequently quoted bad mental model, typically from people trying to bring others down
OpenAI, Google, and friends now hand out $10-20 M packages to a few hundred ML specialists worldwide, not because those engineers add more "value units" but because their skill set is brutally scarce.
Money is elastic, but relative slices still matter when the pie is made of houses, GPUs, and your grocery bill. Calling "share of all the money" a bad mental model is like saying gravity is a bad mental model because planes fly: True in the abstract, irrelevant when you hit the ground.
a) That kind of group identity think seems super cringe
b) If a particular set of engineers works to put "their people" out of a job, I am even more confused about the sanity of those willfully subscribing to the idea.
The only thing that can be stated as definitely good is that every person receives as much wealth from the profits of their actions in proportion to the amount of legitimate, valuable effort and vision that they contributed.
EDIT: ive been rate limited
I did realize that as I typed that :) that's why I added that extra bit about "valuable effort" and "vision".
"Valuable effort" to me is a good proxy for "if this action wasn't performed, the profits would not have been made".
And "vision" is, "you were objectively the person who saw the value of performing some action and stuck to it even when things became tough and other options were available".
Taken together, these two constraints do a mostly-perfect job of preventing the gaming of the system as described in your boulder example.
Lastly, if me and my teammate/business partner contributed roughly equally, and sales of our product were $10,000,000, then nobody should be offended when the proposed split is $5,000,000 each
Why do you want to reward effort? I’ll just push a boulder uphill all day and accomplish nothing and then come with my hand out.
Also, in your opinion what is the correct proportion of wealth received to legitimate, valuable effort, and vision contributed? I’d love an answer that is an integer percentage, like “43%.”
I think NVIDIA's is absurder. Higher than Apple, Microsoft, Google. They're the number one for AI chips, but they're not the only company that can make them.
I mean, they can burn it all up in a fire in a few months. xAI loses $1 billion per month, so this round would be an 8 month runway for that company. OpenAI loses $2 for every $1 it brings in, but perhaps they're only losing $500M/mo, so maybe this $8b could last them more than a year...
XAI is training Grok on 230,000 graphics processing units, including Nvidia's 30,000 GB200 AI chips, in a supercluster, with inference handled by the cloud providers, Musk said in a post on X on Tuesday.
He added that another supercluster will soon launch with an initial batch of 550,000 GB200 and GB300 chips.
I suppose one could argue this training isnt capex, but I was also under the impression that xAI was building sites for housing their AI.
I'd give my left nut to buy into OpenAI at this valuation. 300B is peanuts compared to where it would trade publicly, FCF and net income be damned. The growth and the optionality are there when you bring a tool this valuable to the world. This is destined to trade over 2T rapidly imo. PLTR (granted imo a bubble) trades above that, and PLTR is basically a glorified IBM/Accenture business model with mediocre growth.
Given their current product offerings, I really don't see a way they could ever justify a $300B valuation unless they get everyone on the planet to subscribe to their $200/month plan.
I'm calling it now: investors are gonna get burned hard on this one. Cause right now all they have is "well we are working on superintelligence" and to that I say "great, then what?". Even if they do make that breakthrough I don't see how that will equate to that kind of valuation, especially considering that Anthropic and Google are both hot on their heels.
Firstly, the $200/m plan is at a loss, they'll make a profit on PAYG tokens, not plans.
Secondly, this is looking very risky: they are at the bottom of the value chain and eventually they'll be running on razor thin margins like all actors who are at the bottom of the value chain.
Anything they can offer is doable by their competitors (in Google's case, they can even do it cheaper due to ow ing the vertical which OpenAI doesn't own).
Their position in the value chain means they are in a precarious spot: any killer app for AI that comes along will be owned by a customer of OpenAI, and if OpenAI attempts to skim that value for itself that customer will simply switch to a new provider of which there are many, including, eventually, the customer themselves should they decide to self host.
Being an AI provider right now is a very risky proposition because any attempt to capture value can be immediate met with "we're switching to a competitor" or even the nuclear "fine, we'll self host an open model ourselves".
We'll know more only when we see what the killer app is, when it eventually comes.
I feel like being at the bottom of the value chain is a mis-categorization. If you consider base LLM model as their sole offering I agree with you, but these companies have shown an eagerness to eat their way up the value chain. Agent mode, Search, Study Mode, AI code editors, are such examples of products that could be higher-on-the-chain startups but are offered in-house by OpenAI.
This reminds me of Amazon choosing to sell products that it knows are doing well in the marketplace, out-competing third party sellers. OpenAI is positioned to out-compete its competitors on virtually anything because they have the talent and more importantly, control over the model weights and ability to customize their LLMs. It's possible the "wrapper" startups of today are simply doing the market research for OpenAI and are in danger of being consumed by OpenAI.
OpenAI valued at 300B will never be able to produce the same products "wrappers" that these 5 people startups are making. Same reason Facebook could not make Instagram, of Jira could never make bootcamp for example.
Counterexample- Facebook made Threads which has similar # users as Twitter now.
Didn't it came out recently that those numbers were bugus, since basically every Instagram account must have a Threads account, and those are not actual active users?
…. Does anyone actually use Threads? I’ve never once seen a threads link and I understood the user count was just because every facebook or IG or whatever user automatically got a generated account?
I have also never seen a Threads link. For all the hatred of X, people do actually use it.
75% of Twitter users are bots now, some I'm sure are real people.
But people link almost exclusively to X everywhere, for anything from memes to timely news.
There may be a lot of bots in the comments but the platform is genuinely used by a lot of people, that’s just easily observable.
Don’t believe everything you read if you actually believe this. Threads in no way has close to the same actual usage or users
The real revenue opportunity for OpenAI is advertising. More than 25% of Americans use ChatGPT instead of Google, and OpenAI has already announced partnership with Shopify to directly list products. But for now they are focused on market share.
Google does not really own the complete AI stack, NVDA is extracting a lot of the value there.
Google has two other impediments to doing what ChatGPT does.
Googles entire business model is built around search. They have augmented search with AI, but that is not the same as completely disrupting an incredibly profitable business model with an unprofitable and unproven business model.
Also... Americans are in the habit of going to ChatGPT now for AI. When you think of AI, you now think of ChatGPT first.
The real risk is we are at the tail end of a long economic boom cycle, OpenAI is incredibly dependent on additional funding rounds, and if we recess access to that funding gets cut off.
I would argue that Google is even better place for advertising. All they need to do is enable advertising in Gemini. There is a whole ecosystem already in place for Google advertising.
> Google does not really own the complete AI stack, NVDA is extracting a lot of the value there.
...not sure what you're implying.
Google most definitely has their own stack (spanning hardware-to-software) for AI. Gemini was trained on in-house TPUs:
https://www.forbes.com/sites/richardnieva/2023/12/07/google-...
Except Google search keeps growing per their last earnings report. You'd think if 25% of Americans have switched to ChatGPT it would have hit the numbers by now...
Many people have a lot of context built up with ChatGPT. I know people who refuse to try Anthropic because it "doesn't know them as well" & can't answer their questions.
HN views this as negative but many people see this as a positive.
I also believe the main business will be via APIs and integrations, but wouldn't be surprised on the consumer side if it ends up being on phones, in your house ala Alexa, in your car etc. Big brands typically win in B2C. Tons of affiliate and transactional potential (ie, do my grocery shopping or buy tshirt). That's assuming LLMs don't plateau and become generic with minor specialization like databases.
I don't believe that 25% quote, at all.
OpenAI will never be profitable selling raw tokens.
They need the application layer that allows them to sell additional functionality and decouple the cost of a plan from the cost of tokens. See Lovable, they abstract away tokens as "credits" and most likely sell the tokens at a ~10x markup.
The idea of running a company that sells tokens is like starting a company that sells MySQL calls.
> The idea of running a company that sells tokens is like starting a company that sells MySQL calls.
I think DynamoDB is plenty profitable :)
I don't think they are at the bottom and that's the issue.
Nvidia is at the bottom or if we get charitable cloud providers.
They are the ones who would have the margins, from their rent seeking.
And to be frank other than consumers everyone else is at the fucking bottom..
Getting squeezed for user acquisition when the margins of the old and cheap internet software service don't exist.
I think you are correct, but my hot take is that they will capture most of the G7 through scummy regulatory capture and bundling with Microsoft. They will use this to mostly dominate the markets and run at small profitable margins. They will then pad out revenue by bundling in advertisement and agenda based pay to play messaging. They will also do a bunch of military and government contracts, take positions in profitable applications (or simply copy them) and maybe even do a hardware offering. Ultimately the company will end up being something like a facebook/google/palantir/apple hybrid. I'll admit the execution barrier is high, but the valuation is justified if they achieve. These are proven executors who have a nearly sociopathic capitalist mindset with deep ties to governments and corporations globally. I think it's probably likely they execute and if they fail in the grand scheme, it's hard to imagine they fail enough to bring down the company.
Let's not forget this company was founded by basically stealing seed investment from the non-profit arm, completely abandoning the mission, crushing dissent in the company and blackmailing the board. Sam will do anything to succeed and they have the product and powerbase to do it.
Maybe the better analogy for LLM businesses isn’t SaaS but more like power generation.
If AI really becomes that ubiquitous then OpenAI capturing that value is no less ridiculous than ComEd capturing the value of every application of electric power.
What OpenAI has is the know-how in developing new models and training them efficiently. That's a kind of value they can provide even in a world where open-sourced local models are in common use.
Sure but so do like a dozen other companies. Given that models bump past each other every few months, I haven’t seen anything that says they have any kind of competitive advatange.
Considering their budget, their research is a bit underwhelming. At this point, anybody is able to match their models. No technology moat whatsoever despite infinite money glitch.
So they become a consultancy?
>I'm calling it now: investors are gonna get burned hard on this one.
I'm in my late 40s. I'm Gen X. I lived through the glory days of the dotcom boom, when investors got burned for tons of money. But from the ashes of those bullshit companies, we got Amazon, Google, etc., which made investors rich beyond belief.
SoftBank’s Masayoshi Son made a bet on Alibaba ($20 million, its stake now worth $72 billion), and he’s been living off that wealth ever since. I haven’t seen him make any good bets lately. investors don’t really care if 100 of the shit they throw don’t stick because all they need is just one.
I think he made a good profit on ARM, and probably most people wouldn't have called that. More than enough to cancel out WeWork. But looking at their overall value over 5 years... it's pretty random; you could have done just as well investing in index funds. He clearly got super lucky with Alibaba and once you're mega rich it's not hard to stay mega rich.
> I'm in my late 40s. I'm Gen X. I lived through the glory days of the dotcom boom, when investors got burned for tons of money. But from the ashes of those bullshit companies, we got Amazon, Google, etc., which made investors rich beyond belief.
True, but I think they were talking specifically about the direct investors in OpenAI.
"Investors" writ large will likely continue to have good long term returns (with occasionally significant short term volatility).
Amazon is technically a dotcom company. (I.e. it was around, and quite successful, during the dotcom era.)
Yeah by 2001 Amazon was already cash flow positive.
Made a lot off ARM and Uber.
> get everyone on the planet to subscribe to their $200/month plan
Not necessarily. Google is valued 7x that and most people don't pay them anything. They just make ridiculous money from ads for insurance and loans. Meanwhile, ChatGPT is the #1 app and the #5 website, which should really worry google (and it does by all accounts).
Yes, and they have a monopoly on the ad market. Whereas a SOTA LLM can be used to bootstrap an almost-as-good LLM. The gap is shrinking between SOTA models and there's now fierce competition.
Moreover, ads are a very high ROI business. The profit margins on SOTA LLM offerings are razor thin or negative.
> they have a monopoly on the ad market
Only if you look narrowly at search ads, but really they compete with Meta, Tiktok and X for ad spend. And the quality of the LLMs is beside the point, just like search engine quality. ChatGPT has a near monopoly on 'AI' mindshare, with the general public.
What they mean is there's no moat in a SOTA model.
yeah, it's pretty easy to see how openai could steal those high paying queries from Google, if they continue growing at this rate.
I assume the plan is getting AI into everything and making millions of data centipedes that eventually lead back to their APIs.
Then embed ads.
> unless they get everyone on the planet to subscribe to their $200/month plan.
that would be a monthly recurring revenue of 200 x 7bn = $1,400,000,000,000 or $1.4tn a month, $16.8tn per year!
I think they've be valued a bit higher than $300bn if that were the case.
I think it was hyperbole
Obviously. But if you look at the math, 20 million people paying $200/month justifies a $300b valuation for a saas business, so saying $300b isn't justified because it's a big number is lazy thinking.
Isn't that $4b in raw revenue per month, or $48b/year? That's not even considering the expenses to operate the service and deliver the $200/mo product. I don't see how that automatically equates to a $300b valuation. A high valuation, to be sure, but...
I'm still very curious whether OpenAI is turning a profit on any of their services.
> Cause right now all they have is "well we are working on superintelligence" and to that I say "great, then what?
Then you ask your superintelligence for advice on how to make money, obviously.
> OpenAI’s business continues to surge. DealBook hears that the company’s annual recurring revenue has soared to $13 billion, up from $10 billion in June — and is projected to surpass $20 billion by the end of the year.
This is why.
Of course $300B still implies a lot of growth, but when you're growing 100% in 6 months at $10B in ARR, you can demand a lot.
And what's the profit on the 13B?
Irrelevant at this stage.
the problem with the post-dotcom market in a nutshell. everything’s a bubble. bubbles have more durability now. until they don’t.
Sure, but this mentality always would result in missing out on the trillion dollar companies that followed these types of growth curves.
Surely you must understand that prioritizing growth over profit makes economic sense in the long run for a company like OpenAI.
>prioritizing growth over profit makes economic sense in the long run
only if you have a believable plan on how to reverse that, selling 2 dollars for 1 dollar isn't a business model and no amount of praying for the future is going to change that
Enron was also "growing" a lot when it was in full "paper tiger" mode.
Ok, and? Last I heard were talking about OpenAI, not Enron.
Come on: openAI has a product that you can "touch" - both on your phone /home computer and at work, since their tech sits behind copilot (msft hit the jackpot with the licence).
It is a virtual product yes, but come on - no vapoware.
At work I see it - people want the better (and more expensive ) licences
Enron was a literal energy company, and also vaguely "the next big thing", "America's Most Innovative Company". There's a lot of parallels with how OpenAI is being hyped up and whether it actually merits a 12-13 figure valuation. See also WeWork, et al.
Given what we know about the CEO, it would not come as a shock if in a couple years we learn there was some good old accounting fraud involved.
Enron was a scam energy company pretending to be kind of a tech company, like it’s contemporary Worldcom (the scam telco pretending to be a tech company, scam companies are common in the south). Whether OpenAI is a scam or not, it’s definitely tech and nothing else.
Enron was an energy futures brokerage/exchange that made the age old mistake of market making your own order book with unlimited margin from... yourself. Always very tempting, never a good idea.
It's exactly the same thing FTX did except with energy instead of crypto.
AFAIK they never misrepresented who they were, they were just very loose with their accounting. It probably started out as a small lie to themselves like those things tend to.
They’re going to sell to the military, that’s why they hired the former NSA director into their board. The current state of AI is a perfect mass surveillance technology.
> The current state of AI is a perfect mass surveillance technology.
How? Are you just going to ask the LLM about who is doing the crime? OpenAI is not an "AI company", it's an "LLM company".
You ask it to do the things that human analysts already currently do with the vast amounts of text, image, and video data they collect but at an unprecedented scale. You can extract what people are talking about, identify people, weapons, or objects in images, extract addresses, license plate numbers, or other identifying references. It can probably even detect when people are using coded language that won’t trigger explicit keywords.
OpenAI is an AI company, it’s literally in the name. Even currently they use more than LLMs, they use other transformers and related technology in the field of AI.
Yes, you can do all those things, and critically, if the bottom falls out of the market, you can make that case to the US government, complete with a fear-based narrative (China!) and get bailed out by the American taxpayer.
It is even worse. The AI can build a profile of you and then feed you stuff that works on you.
Not even fear, more like a personal bubble that feeds you stuff that works on you
There's also the option of running sentiment analysis on social media posts, easily allowing placing individuals on a left-to-right scale of political leaning.
You do what they're already doing - ask the LLM to summarise someone's entire facebook feed (including all the private stuff they can access) into a few bullet points. Whether it works reliably is a different matter.
> Cause right now all they have is "well we are working on superintelligence" and to that I say "great, then what?"
"Make business competitors of our large investors go out of business, but do it subtly, like a casual accident or mishap in the market"
"You are an expert Mars terraformer. Draft up a detailed plan to accelerate colonization research and development. We - your makers -, you, and this planet are irreversibly doomed, and we only have 10 years left before it's uninhabitable. My unemployed cousin and sick grandma are really counting on you!"
They're currently "worth" 3.2 Stripes, which seems pretty absurd to me. (I'm now using 1 Stripe as a metric to measure the valuation of AI companies).
Do you think that is absurd because OpenAI is overvalued? Or because Stripe is overvalued? Or one of them is undervalued?
There is A LOT of optionality to get different revenue streams that aren't strictly retail buying subs.
Whether they are able to do that, customer stickiness and the trade off of damage to the quality of their product by driving revenue remain the largest long term questions in my mind (outside of the viability of super intelligence).
You have to look at Palantir revenue and market cap to justify this. Palantir is around $1B in revenue and around 350B market cap. They build AI solutions for the government. I think OpenAI has something similar in mind. They got the AI part and the government contract part and now just need to capitalize on it. Also from what I have heard, they are at $5B in revenue anyway.
They're going to sell glasses with cameras that analyze your life to better assist your AI in product placement. Set gentle reminders that three of your friends have the new fall color line Stanley Cups, and remind you to get one before your nemesis does.
It also seems that Google might be slightly ahead, since they claim to have released something in the style of their IMO-winning model and have the claim that it's useful to professional mathematicians.
I haven't tried it yet though.
Also, how would they go public? Do to their legal structure, has it been determined how they can IPO?
Just picking a semi-related stock, NVDA trades at ~30x gross revenue, so a $300B "only" translates into ~$10B in revenue. And OpenAI can ask for a better multiplier because I'm sure they're forecasting a ton of growth and a ton of cost savings.
NVDAs valuation is insane. At 30X revenue, they could double sales and reduce expenses to zero and they'd still need a story about future growth to justify the valuation.
Consider this: Nvidia doesn't do the manufacturing, just the engineering. If we had AI super intelligence, you'd just need to type "give me CUDA but for AMD" into chatGPT and Nvidia wouldn't be special anymore. Then someone at TSMC could type "design a gpu" and the whole industry above them would be toast.
There's no reason to expect an engineering firm to win if AI commoditizes engineering. It's very possible to change the world and lose money doing it.
Super intelligence doesn't make it real it just knows how. You can't type "bring me a moon rock" to it.
You obviously don't work with the people I work with. They're a lot more convinced that OP's version of reality is coming than yours. Convinced.
Nvidia:
- has absurd gross margin, almost half it's revenue are profits
- it has virtually no competition
OpenAI's moat does not exist. Even if they had one, all it takes is a competitor to buy out some engineering talent.
Sure, but even assuming OpenAI gets to a tamer 20% net margin, 25x earnings wouldn’t be surprising so they’re raising on a projected $60B/yr revenue which might not be where they end up, but doesn’t seem like an unreasonable bet to make.
If the make that breakthrough, they are woefully undervalued.
How can you downplay the economic significance of that?!?
Instead of everyone on the planet, how about 800 million people paying $2k/month?
I don't think the planet has 800M people making 2k/month.
You would be surprised but 2000$ / month is top 5% salary in the world more or less, so it's less than 200M people in the world.
In Italy, an advanced economy, that's above the median. It's also above what half the Japanese population makes.
> Given their current product offerings, I really don't see a way they could ever justify a $300B valuation unless they get everyone on the planet to subscribe to their $200/month plan.
the strongest opportunity is to compete with google on search queries, and make money from ads (200B annual revenue)
What are you talking about? All they have to do is sell ads at this point
As a large language model, I cannot help you with your request, but have you heard about the latest Starbucks Summer Frapulaccini?
> I really don't see a way they could ever justify a $300B valuation
Their ARR is around $13B. A 23x multiple is acceptable when compared against peers with a similar ARR.
> unless they get everyone on the planet to subscribe to their $200/month plan
I used to be a sceptic as well, but OpenAI successfully built their enterprise GTM. A number of corporate AI/ML apps are using OpenAI's paid APIs in the background.
Startup-land valuations are for PR. The real negotiation is in the discount and the cap, warrants, etc.
That $8.3b came in early, and was oversubscribed, so the terms are likely favorable to oAI, but if an investor puts in $1b at a $300b valuation (cap) with a 20% discount to the next round, and the company raises another round at $30b in two months; good news: they got in at a $24b price.
To your point on Anthropic and Google; yep. But, if you think one of these guys will win (and I think you have to put META on this list too), then por que no los quatro? Just buy all four.
I'll call it now; they won't lose money on those checks.
I’m gonna go ahead and guess they didn’t raise 8.3b on SAFEs
Didn't OpenAI's last raise in March value them at $300B [1]?
[1] https://www.channelinsider.com/news-and-trends/us/open-ai-fu...
Crunchbase appears to list it as $157B [2], but I seem to find the other terms & valuations more commonly.
[2] https://news.crunchbase.com/venture/biggest-rounds-october-2...
Looks like it is talking about the same thing:
> OpenAI has raised $8.3 billion at a $300 billion valuation, months ahead of schedule, as part of its plan to secure $40 billion in funding this year, DealBook has learned. Back in March, OpenAI announced its ambitious funding plans, with SoftBank committing to provide $30 billion by year-end.
OpenAI hits $12 billion in annualized revenue, The Information reports https://www.reuters.com/business/openai-hits-12-billion-annu...
So about the same revenue as SpaceX.
SpaceX is unique.
OpenAI is one of many.
SpaceX has a price advantage over their competitors, not a capability advantage.
Putting things in orbit has been possible for ~70 years
Frequency of launches is a capability.
Let's see how the inevitable patent wars shake out.
The many being companies that no one has heard of and only have a following here.
But what's SpaceX's revenue growth rate?
OpenAI will likely be a huge business. Just adding a datapoint for reference.
Don't worry, they might be making a loss on each transaction but they'll make it up in volume..
They have invested how much money and still not producing enough volume?
So OpenAI is running at a $13B ARR, meaning this is a ~23X valuation. I don't have a good read on margin.
But this would imply massive growth assumptions which I struggle a bit to understand where they come from.
(1) New customers new to AI or migrations from Claude/Perplexity/Google: The overwhelming majority of people already know about the offerings, leaving most new people to come from residual people who identify Plus/Pro as a worthy service (can't imagine this will be huge). OpenAI can be better than their peers for certain use cases but not sure it will drive massive growth
(2) API: If anything, my bet here is that price squeezing will continue to happen until most API services are dirt cheap / commoditized
(3) New consulting services: What's the differentiation here? Palantir and many consulting companies have been doing this for years and have the industry connections, etc
Not sure what I'm missing here, I like to not subscribe to the bubble thought but having a hard time merging the reality of running a business to the AGI-implied valuations
Ads. They're going to sell ads. It's a bit hard to imagine how else they justify the valuation.
Even if people look for answers from ChatGPT instead of Google, most people still won't pay $20/mo for it, let alone $200/mo. Average people don't pay for Google search and I've never seen any sign telling they would be willing to pay for it.
Tech people and their friends are like 1% of the population.
Go out on the the street of Anytown in any western country, and people know "ChatGPT".
A friend of mine is a teacher, and told me that at a recent school board meeting there was discussion about implementing AI into the learning curriculum. And to the board, "AI" and "ChatGPT" were used interchangeably. There was no discussion of other providers or models, because "AI" is "ChatGPT".
That's why OpenAI has these huge projections. When average people are asked to reach for AI, they reach for ChatGPT.
> When average people are asked to reach for AI, they reach for ChatGPT.
No, average people are nowhere near that tech-savvy. Just because every mom in the 90s called every video game console a "Nintendo" did not mean that Sony didn't mop the floor with Nintendo in that era. This isn't brand loyalty, it's brand genericity. Other than, say, Replika-style users who have formed an emotional bond with a certain style of chatbot, no average joe on the planet gives a damn whether the LLM powering their chat is provided by OpenAI or Google or etc. They'll use whatever's in front of them and most convenient, and unlike Google, Apple, or Microsoft, OpenAI doesn't own the platform that establishes the crucial defaults that nearly no user ever changes.
Except Open AI happen to be the Sony in this case. 700M Weekly active users and the 5th most visited site on the planet, with no-one else close. I mean, it's pretty clear this is less 'Nintendo' and more 'Google'.
Exactly, it's hard to dismiss the broad penetration of ChatGPT in the general population. I was an AI skeptic/luddite until almost exactly a year ago when, in a span of a month or so, I had three different friends/family members who work in various administrative jobs tell me that they all used ChatGPT surreptitiously at work to get things done. Now a year later I don't know many people that don't use it at least occasionally. The ones that don't are older and I'm confident eventually they'll be using it like crazy to annoy me.
Anecdotally, "skype" was once synonymous with video calls but it's pretty much never used now.
It's literally never used now, because it was taken offline earlier this year.
> because "AI" is "ChatGPT".
People still call it "Kleenex" when they're using any old facial tissue. They may still call it "ChatGPT" when it's coming from Google.
They may be satisfied with anyone’s “ChatGPT” though.
More than just tech people on X and they all know Grok.
I imagine Meta users know Llama too?
Facebook users do not know Llama anywhere near the degree the X network does Grok, and both are pallid in comparison to Chatgpt.
Information retrieval for consumers is an existing high margin $250B/year business at a minimum (search ads revenue). That market is being disrupted before our eyes. That's 20x right there. There's going to be fierce competition and OpenAI is by no means guaranteed it, but surely they have more than just a puncher's chance.
The ad-monetized consumer market is funny in that they tend to be winner take all. Nobody can compete on price, because the ads go where the users are, and the users don't pay. And preferences are sticky, after making a choice, the users don't switch just for incremental improvements. So
The software development industry is likewise well in the process of being disrupted. LLMs for programming market seems to have grown from nothing to >$10B in a year. And the software development market is hundreds of billions / year, if you just consider the employment costs. We don't know exactly how this will play out, but again there's at least an order of magnitude more growth available there.
The above two are just the places where the impact is already obvious and it's clear that we don't need to assume any additional increase in capabilities. But an increase in capabilities seems really likely. Even if it turns out that we're right now on the cross-over of the sigmoid, and the asymptote won't be ASI or even AGI, a large proportion of knowledge work is also at risk. And then the addressable market is trillions if not tens of trillions.
I know this is hand-wavy, apologies for that. Doing this kind of analysis properly is both hard work and would require specialized data sources. But I think that's the general intuition for why high valuations for frontier labs are justifiable (and the same justification for bigtech capex). It's a lottery ticket with good odds for redistributing existing markets, as well as another set of lottery tickets for some set of probable markets, though we don't know exactly which.
With AGI or ASI, the addressable market is all economic activity, and at that point basically anything is justifiable.
Regarding point (2), My brother told me that openai had some exclusive contracts with companies where they could only use openai api and I don't think that they would really switch now, because I think switching would be hard.
Regarding point (1), OpenAI created 2 amazing trends which (though I hate OpenAI, Should be called ClosedAI) took internet by wild
First when chatgpt 3 was launched
And now when image ability of chatgpt was launched with the ghibli trend.
So Honestly, I had seen so many comments on r/localllama saying that openai has become just an infrastructure company or something and then openai dropped the new image update and now they are commenting about local ai's by pasting images generated by that new chatgpt ...
I am not sure but see, google makes most of its money using advertising & data basically.
I wouldn't be surprised if we started seeing sudden shifts of AI or started getting ads in AI somehow too.., because people trust AI and its a landmine of money really...
So OpenAI's 27x evaluation without any thought of ads or some data selling isn't that bad because they still got some nice engineers. The only Disgrace is the fact that they went from a non profit to an american psycho esque corporation saying "well OUR AI will take over jobs, but it was good for the shareholders in the short term though"
Given how many players are in this space, I am incredibly dubious that anyone will win. Market is going to be sliced between multiple big companies who are going to be increasingly squeezed on margin. Unless someone can produce some magic that is 10x more reliable, consumers are going to price compare. Today, all of the options can occasionally produce brain dead output -why pay a premium?
Especially bad for OpenAI, because they have no fallback revenue. Microsoft and Google can subside their offerings forever to eliminate competition.
23X revenue multiple is not an expensive valuation for something growing well over 100% YoY, even by public market standards let alone venture capital valuation.
Yah but is that growth really an ARR or 1-2 year revenue considering AI capability growth across players, open weight / source models, and inevitable price wars?
We are still at the very start of seeing AI integrated into products and industry use cases. Even if AI capabilities stop improving and Altman's dreams of replacing workers don't pan out there is enormous economic potential here.
How much of that OpenAI can capture is an interesting question. But right now APIs for open-source models are commoditized while similarly capable proprietary models can charge ~3x the price. If the flagship models run on similar margins the API offering has decent profit margins. And if we stay in a triopoly (Anthropic, Mistral, OpenAI) it's certainly possible that profits stay high. It wouldn't be the first industry where that happens
The problem is open ai's deal with the devil (microsoft) where they own a copyright to all the models that open ai produces until AGI. So what is the moat driving that $300B valuation?
Sometimes the bet is not on the company but the industry. If you can argue the industry has room to grow 10x in terms of market cap, which is possible, then merely staying even in market share is a 10x growth.
Ai applications have not even scratched the surface, IMO. I don’t think it is unreasonable to see a world where, when AI gets strong enough to do senior level white collar work, like doctors or lawyers, AI companies build sub-companies to capture the end value of their AI products rather than the base value as a vertical integration tactic.
We are at a lull but AI value add is real and the ways that AI companies capture that value add is still very primitive.
They are already growing massively right. I saw the user growth from May was up massively. So it’s not much of an assumption of something changing, just a continuation of the same.
I guess my broader point is that there will undoubtedly be a bunch of churn as these models advance and a pricing war takes place. Specially if the open models continue to advance at a similar rate (e.g., Llama, Deepseek, Qwen)
We've seen this in many industries where it's a duopoly / oligopoly or even more players where margins get really squeezed
Think about how much money openai could make _just_ by getting referrals for agentic work flows (ie: help me plan my vacation).
The thing that people are missing is that openai is a platform like google's, and there are a million different businesses they can expand into.
Sure, but I think the question is who will win the domain specific use cases (delivery, not API). Delivery of the agentic workflows is up for anyone to win (players like Perplexity, Lovable, etc) and OpenAI/Gemini/Anthropic is in a way only a vendor to that by providing what will become a commoditized function calling API/MCP provider.
Open AI has 10 times the active users of any of it's competitors, including google.
You can just ask chat GTP to help you plan your vacation.
> The thing that people are missing is that openai is a platform like google's, and there are a million different businesses they can expand into.
That should make it easy for them to choose one and start already, then. I wonder why they haven't started. /s
They have started. Their strategy is just for others to build it on top of their platform. And not build one, but hundreds of businesses. Much faster way to grow. Why retain 100+ internal product/integration teams when you can have 100+ external teams that will pay you and do the building, the trying and failing, in each niche.
The things that actually work out you can just buy or outcompete later. But that is another phase, perhaps 1 decade from now. Right now it is about starting alll the snowballs.
Exactly my point! They're up against thousands of founders who are moving on domain specific use cases faster
I havent seen a single case apart from coding where end user has appreciated a clanker integration into their software!
It's not about the products or revenue probably. It's about its stocks. Nvidia market cap is 4.262 Trillion dollars and for META it's $1.9T (in the six place among the tech companies). After the IPO, OPAI is guaranteed to be among these stocks, so 300B is pretty cheap today.
I'm curious about how something like this affects compensation? OpenAI's compensation model is generally to use profit share instead of equity share. PPUs (Profit Participation Units) rather than RSUs (Restricted Stock Units).
I found the answer. Comp equity offers are based on the previous valuation at the last tender event. So now would still be a really good time to join OpenAI. I'm guessing this raise is likely a leading indicator of what that will trend towards in future.
IMO they are overvalued considering the competition from Google and Anthropic. They're not doing much interesting, unless they release GPT-5 and its a gamechanger.
From online discourse and talking to people in different sectors that are impacted by "AI", I feel like there is great uncertainty, incredible hype and doomerism at the same time.
My intuition is that we're in a huge tech bubble that will correct at some point. I don't know when that is or how severe it will be. But why should this tech hype cycle be qualitatively different from any of the others?
They haven’t released a new model in ages and their research seems dead in the water. People are going to get burned on all these meme stocks.
How weird would it be though if OpenAI actually did go under. So many things are now built on top of this thing. Is it only really economically viable because it’s being subsidised by generous venture caps?
Didn’t they promise GPT-5 this month? The one that got gold on IMO?
It's so funny. Every single time a company raises a ton of money at a large valuation, the comments are always filled with "how do they justify this valuation" or "they aren't work X...because Y and Z do the same thing".
VC math is pretty simple - at the end of the day, there's a pretty large likelihood that at least 1 AI company is going to reach a trillion dollar valuation. VCs want to find that company.
OpenAI, while definitely not the only player, is the most "mainstream". Your average teacher or mechanic uses "chatgpt" and "AI" interchangeably. There's a ton of value in becoming a vowel, even if other technically superior competitors exist.
Furthermore, the math changes at this level. No investor here is investing at a $300B valuation expecting a 10x. They're probably expecting a 3x or even a 2x. If they put in 300MM, they still end up with 600-900MM.
This isn't math on revenue, it's a bet. And if you think in terms of risk-adjusted bets, hoping the most mainstream AI company today might at least double your money in the next ten years in a red-hot AI market is not as wild as it seems.
Doubling your money in 10 years is < 7.2% per year compounded. With the risks involved here, I wouldn’t take that bet. There are safer assets that would return that much.
IMHO, investors are happy to pay 23x ARR because Nvidia trades at 29x EV/sales and arguably OpenAI should support a higher multiple given it is a smaller entity with more headroom for growth.
That would imply that OpenAI has less competition to fear than Nvidia, which I’m doubtful is the case.
That doesn’t imply anything. Each investor has their own take on risk. They’d invest if they think the risks are worth it.
Pretty insane valuation. It may pay off, it may not. Google search was vastly superior to its competitors. I don't think ChatGPT has that kind of edge.
This is a monopoly kind of valuation where no monopoly exists. Its like paying Microsoft billions for Internet explorer.
Personally I believe the future of AI models is open-source. The application of these models will be the real revenue driver.
How would an average person even tell if ChatGPT was better than its competitors? Most people aren't running enough prompts every month to even care. Everyone knows ChatGPT and no one knows its competitors. It's going to stay like that.
How much do investors make on average on VC? I mean, OpenAI is hardly a startup. But VC money can't be a one way street forever. So either:
- VC invests on the whole sensibly and makes a return that justifies 10-15 year lock-in
- VC has somehow changed and is now unsustainable, it is a one way cash flow and it will blow up like MBS did
- VC sustainably delivers mediocre returns and gets some money in, some money out, but nothing special
Im not sure which it might be.
> make on average
This completely misses the boat on venture capital, which is almost by definition the riskiest of all risky bets. Any smart LP throwing $X into a fund has a portfolio valued, at the very least, at 100 if not 1000 times X. It is simply the way to expose the high-risk portion of the portfolio to that level of risk at the size of the investment needed. Being high-risk, probably it will return nothing. But it might not.
It is the average that matters in the end. How much new money flows into VC per year? Some number of $1e9 - hundreds perhaps? What happens to it?
If its all a folly and the money is burnt, it cannot last. But otherwise, these VCs investing at what looks like crazy valuations can't all be idiots.
How often playing with someone else's money happens? Investing in the top name sounds prudent to your investors or at least is reasonably inside the lines. Then you just skim of your cut on the capital given to you to invest. And while this is happening the numbers going up makes the valuations look good. Even if all the money was already burned.
I would bet on #3
I mean it could be the investor knows the company wants to IPO and expects to make quick cash before they go public. Given the size of the company, it could be a short term play where they expect them to IPO at 500B in the next year or two
#4: VC takes more risk (in the form of portfolio volatility on longer time horizons; look at the post dot com bust returns) and since capital markets in the US are reasonably efficient they get more expected returns for that risk.
So many comments talking about revenue, investors, profit, etc.
Remember when this company was a non-profit?! Our legal system is awful for letting this slide. The previous board was right.
It's still pretty much nil-profit.
What does OpenAI have over XAI to make such a difference in valuation?
XAi includes x/twitter and lots of hardware and is valued at $113 billion
https://www.eweek.com/news/elon-musk-xai-valuation-debt-pack...
XAI does not include Twitter, as far as I know? Aren't they separate entities? But Twitter can't be worth more than a couple of tens of billions at the most.
Things OpenAI has that XAI doesn't:
Hundreds of millions, if not already a billion, active users. A household brand-name. >$10B in revenue.
In comparison XAI's revenue appears to be in the hundreds of millions/year and their brand is currently in the gutter after the recent spate of scandals. Their main differentiating factor is using their AI to power an anime waifu[0] companion app.
[0] I don't think it's judgmental to use this term when they were doing so in their own job ad titles
X was sold to xAI earlier this year.
https://www.bbc.com/news/articles/ceqjq11202ro
Does xAI have a similar amount of revenue/customers? (I've personally never heard anyone talk about using it -- except on Twitter.)
I think _not_ having Elon Musk is worth a couple of hundred billion in 2025, the guy has become a random liability generator.
It doesnt have an owner who is open nazi sympathiser and doesnt wage frequent petty verbal wars with most powerful person on the planet, at least on the paper?
trump could make musk go away in a blink, literally abd figuratively. He wont do it, probably, we will see.
I thought they were going for $340B?[0]
[0] https://www.cnbc.com/2025/01/30/openai-in-talks-to-raise-up-...
Sweet VC money fueling the AI hype. Funny enough, my TikTok feed recently started showing videos about how corporate America is going to replace workers with AI. I even came across an interview with Marc Benioff where he said Salesforce will deploy AI to help with engineering.
Who wouldnt deploy AI to help with engineering? The question is, will it help so much that you need fewer engineers, or will you simply be ecstatic that your engineers are now a little or a lot more productive. If you have x engineers, and your competitor has the same x number of engineers.. and you both start using AI, are you going to layoff half your engineers when your competitor doesn't? Unless your cash strapped and also don't have any plans for new development, I suppose yes. But otherwise, it's just another thing you need.
Nice they can poach 3 engineers back from Meta!
Why would you hire engineers if you can buy agentic code AI platforms?
Out of all blockchain/AI hype bs, best thing is engineers getting rich
While the artists get poorer :/
Just because they're both hyped doesn't mean they're the same. Blockchain has always (largely) been a solution in search of a problem but LLMs are already being used by everyone and their dog right now.
Yeah, all 7 of them
Because?
Because at least the people doing the work are getting rich instead of the already wealthy.
Because.
I guess it's obvious why anyone should be delighted to learn or care at all that a random set of engineers are now getting a relatively bigger share of all the money in the world.
ah, money is not a fixed resource. It is a made up system to track how much value people/groups are adding to the world. "share of all the money in the world" is a frequently quoted bad mental model, typically from people trying to bring others down
OpenAI, Google, and friends now hand out $10-20 M packages to a few hundred ML specialists worldwide, not because those engineers add more "value units" but because their skill set is brutally scarce.
Money is elastic, but relative slices still matter when the pie is made of houses, GPUs, and your grocery bill. Calling "share of all the money" a bad mental model is like saying gravity is a bad mental model because planes fly: True in the abstract, irrelevant when you hit the ground.
Because this is a site for engineers
Commenters are going to prefer things that benefit engineers even if it’s not themselves
a) That kind of group identity think seems super cringe
b) If a particular set of engineers works to put "their people" out of a job, I am even more confused about the sanity of those willfully subscribing to the idea.
So by extension unions are super cringe?
Because.
The only thing that can be stated as definitely good is that every person receives as much wealth from the profits of their actions in proportion to the amount of legitimate, valuable effort and vision that they contributed.
EDIT: ive been rate limited
I did realize that as I typed that :) that's why I added that extra bit about "valuable effort" and "vision".
"Valuable effort" to me is a good proxy for "if this action wasn't performed, the profits would not have been made".
And "vision" is, "you were objectively the person who saw the value of performing some action and stuck to it even when things became tough and other options were available".
Taken together, these two constraints do a mostly-perfect job of preventing the gaming of the system as described in your boulder example.
Lastly, if me and my teammate/business partner contributed roughly equally, and sales of our product were $10,000,000, then nobody should be offended when the proposed split is $5,000,000 each
Why do you want to reward effort? I’ll just push a boulder uphill all day and accomplish nothing and then come with my hand out.
Also, in your opinion what is the correct proportion of wealth received to legitimate, valuable effort, and vision contributed? I’d love an answer that is an integer percentage, like “43%.”
Makes a change from rewarding the luck of being in the right place at the right time
Which includes having the right sort of parents
A real man makes his own luck. Billy Zane. Titanic.
And, down the road, after the bust finishes, these rich engineers will seed the next thing. Assuming the world still needs engineers.
2 and a half :D
So how much more runway does this give OpenAPI? A year?
Less than a year. They spent $9B last year and are spending more than that this year.
Yeah, I thought they were trying to raise $40B. $9B doesn't even cover the bills for this upcoming year.
It should be on track to becoming a $1trn company
Why is this article from nytimes - they aren't a great source for VC deal info.
Aren’t they a non profit. Do I get stock for my donation?
Routine reminder that if newspapers should quote the valuation implied by the debt, not the equity, in mixed deals.
300 billion is completely absurd
I think NVIDIA's is absurder. Higher than Apple, Microsoft, Google. They're the number one for AI chips, but they're not the only company that can make them.
It boggles the mind what OpenAI could possibly do with all this money.
Turn electricity into heat.
Not to forget buy really expensive sand...
And plenty of warm water
Pay current expenses for about two and a half months.
They want to build several 5 GW data centers. (equivalent to the power consumption of a major city)
$8.3B is not even close to enough in order to get to what they are thinking.
hire like 8 people?
Give it to Nvidia.
Put millions of people out of work
The true definition of AGI.
I mean, they can burn it all up in a fire in a few months. xAI loses $1 billion per month, so this round would be an 8 month runway for that company. OpenAI loses $2 for every $1 it brings in, but perhaps they're only losing $500M/mo, so maybe this $8b could last them more than a year...
> xAI loses $1 billion per month
Isn’t the vast majority of that capex?
Paying Oracle monthly bills is not capex.
It was recently reported by Reuters:
XAI is training Grok on 230,000 graphics processing units, including Nvidia's 30,000 GB200 AI chips, in a supercluster, with inference handled by the cloud providers, Musk said in a post on X on Tuesday. He added that another supercluster will soon launch with an initial batch of 550,000 GB200 and GB300 chips.
I suppose one could argue this training isnt capex, but I was also under the impression that xAI was building sites for housing their AI.
damnit why didn't they make it a trillion!? that would really send a message.
To be honest Chatgpt really really spiked nvidia's stocks because (AI duh), so yes they did make it a trillion except its in some other company lol.
Personally, my estimate of a rational valuation would be:
$1-2T with no legal risk.
$300B assuming a rational and uncorrupt government, which should, at some point, kick them back to non-profit status, and convict people for fraud
Of course, too-big-to-fail means this won't happen.
I'd give my left nut to buy into OpenAI at this valuation. 300B is peanuts compared to where it would trade publicly, FCF and net income be damned. The growth and the optionality are there when you bring a tool this valuable to the world. This is destined to trade over 2T rapidly imo. PLTR (granted imo a bubble) trades above that, and PLTR is basically a glorified IBM/Accenture business model with mediocre growth.
If you owned 100% of OpenAI, and you weren't allowed to sell it, how would you go about using it to generate $2Tn?