$300 Billion For OpenAI - Visionary Valuation Or Loss of Reality?
The ChatGPT provider is now worth $300 billion, despite billions in losses. Here's my reality check.
This article is an update of an article on OpenAI first published in October 2024. It has been updated and expanded following the $300 billion funding round from March 2025.
Sam Altman, CEO of OpenAI, has indeed managed to put together the largest pre-IPO funding round in startup history. He will receive a total of $40 billion in 2025 from SoftBank as lead investor and other venture capitalists, at a gigantic valuation of $260 billion (pre-money).
This means that the company behind ChatGPT is now valued at $300 billion on a post-money basis. That's almost double its last funding round in October 2024 at a valuation of $157 billion.
You have to keep these dimensions in mind: More than 95% of all companies in the S&P500 are currently worth less than OpenAI. That includes well-known companies like Coca-Cola, Chevron, and McDonald's, as well as tech giants like Cisco, IBM, and Salesforce.
The $300 billion valuation represents a nearly fourfold increase from the February 2024 valuation (just 14 months ago) and a twentyfold increase from a funding round three and a half years ago.
That sounds crazy. And maybe it is. At least if you approach the matter with the usual mindset of an investor who is eagerly awaiting the IPO of his pre-IPO investment in order to seek a lucrative exit.
But perhaps the interests of the investors involved are quite different? Who are these investors who are willing to pay this truly strategic price to get a small piece of OpenAI?
OpenAI's Investors
SoftBank had only been an investor in OpenAI since October 2024, with a modest $500 million, and was previously one of the smaller investors in the ChatGPT creators. Now, under the leadership of Masayoshi Son, who is known for his high risk attitude, the Japanese company is going "all in" as a lead investor in OpenAI.
As part of the deal, SoftBank will invest $7.5 billion in the company in the short term, along with $2.5 billion from a consortium of investors, Bloomberg reported. A second tranche of $30 billion is expected by the end of 2025, including $22.5 billion from SoftBank and $7.5 billion from a consortium. SoftBank, for its part, will refinance most of its OpenAI stake with loans.
In addition to SoftBank, various venture capital funds from Magnetar Capital, Coatue Management, Founders Fund and Altimeter Capital Management are said to be in negotiations to join the consortium. Strategic partners Microsoft (and Nvidia?) are also said to be back among the investors.
However, OpenAI had to make some important concessions in order to get its hands on the big money.
The last round of funding in October 2024 was not in the conventional form of equity, but in the form of convertible bonds. These must be repaid with a 9% interest rate if OpenAI does not succeed in abandoning its non-profit structure by the end of 2026. This is not easy at the moment: an agreement has to be reached with Microsoft about future ownership, and then there is a lawsuit by Elon Musk against this new for-profit OpenAI.
There is also an important additional condition in the current Softbank funding round that OpenAI tends to omit in its communications. The Wall Street Journal reports that the money will only fully flow to OpenAI if the company is successfully transformed into a profit-oriented organization, independent of Microsoft, by the end of 2025. If Sam Altman is unsuccessful, the funding round could be reduced to $20 billion, meaning that "only" $10 billion would flow in the second tranche at the end of 2025 instead of $30 billion.
What Are Investors Getting For Their Money?
OpenAI had revenues of $3.7 billion in 2024, with increasing losses of over $5 billion. In 2025, revenues are expected to more than triple to $12.7 billion, according to Bloomberg. There is no profit forecast for 2025, but I expect the loss to at least double or even triple to $10-15 billion. In 2026, revenues are estimated to more than double again to $29.4 billion, and by 2029, revenues are expected to reach $125 billion. In the years leading up to 2029, OpenAI expects significant cash burn and high financial losses.
As a result, OpenAI is valued at 23 times this year's expected revenues in the current funding round. The revenue multiple is expected to drop to around 10 in 2026, which actually sounds like a typical valuation for a tech high-flyer. Especially since ChatGPT alone now has 400 million weekly active users and processes over a billion requests per day. For many users, the ChatGPT brand is synonymous with GenAI, and that branding certainly deserves a premium price.
So what's the problem? The creators of ChatGPT are currently burning over $10 billion a year, and the trend is rising. The ever-growing LLMs are causing exponentially increasing costs in training and operations. Breaking even by 2029 is far from certain.
But Sam Altman didn't get the money for this valuation because of ChatGPT's great success. His ambitions go far beyond Generative AI. He continues to entice his investors with the prospect of an Artificial General Intelligence (AGI) that will develop cognitive abilities and, in the future, will supposedly be superior to human intelligence.
I still don't think this is realistic, because I believe that the current approaches of Generative AI, with their exponentially increasing demand for computing power and energy (especially for reasoning), are not suitable to make this further quantum leap to AGI.
The Exodus At OpenAI
I am a bit surprised that Sam Altman successfully closed this round of funding. Especially considering the massive exodus of his technology leadership team in 2024.
Here is a summary of the departures:
Mira Murati - Chief Technical Officer, founded new startup "Thinking Machines Lab"
Bob Mc Grew - Chief Research Officer
Barret Zoph - VP Post Training, now CTO at "Thinking Machines Lab"
John Schulman - Co-Founder, now Chief Scientist at "Thinking Machines Lab"
Ilya Sutskever - Co-Founder, Chief Scientist, founded new startup "Safe Superintelligence"
In total, 8 of the original 11 co-founders have left OpenAI. Not only have many of the key figures in OpenAI research left, but they are also working on building their own competing companies to OpenAI, also with billions in funding.
The OpenAI $300 Billion Reality Check
I don't want to downplay the achievements and potential of OpenAI: Generative AI is on the verge of changing the way knowledge workers work on this planet. This technological leap is arguably only comparable to the advent of the internet or the invention of the smartphone.
But I think all the predictions that AI will make the majority of people in offices redundant in a few years are greatly exaggerated. Generative AI will help bringing better and better tools and "co-pilots" to the market. But it won't do the thinking for humans. GenAI is not robust per se and will never be able to stand alone where humans need to reliably make the right decisions.
Is OpenAI worth $300 billion today?
I don't think so, because I don't believe that OpenAI will make any further breakthroughs towards true AGI in the foreseeable future. In my opinion, this will require completely different approaches outside or in addition to generative AI. Whether OpenAI or another player will make these breakthroughs is completely open.
A company that "only" dominates the market for GenAI could well be worth a double-digit sales multiple despite a cash burn rate of over 100%, provided that the business model is scalable, i.e. that cost ratios fall and profits rise as the number of users increases.
For example, in any "normal" software company, development and operating costs decrease over the course of the company's lifecycle. How this will work for OpenAI is unclear to me, as the training and operation of increasingly complex LLMs will consume more and more resources.
Sam Altman just had to admit that the new image generation capabilities (in ChatGPT 4o) overload their own systems and are therefore only available on a limited basis.
Unlike other SaaS companies, OpenAI has an incredibly capital-intensive and therefore unattractive business model.
In addition, OpenAI faces stiff competition from other deep-pocketed competitors in the GenAI space. First and foremost, of course, is Google. Then there is Elon Musk's xAI. And last but not least, Anthropic, founded by ex-OpenAI employees and backed by Amazon. In other words, it is unlikely that a monopolistic market with dream margins like Nvidia's will emerge in the long term.
The Interests Of OpenAI Investors
So why are all these big-name investors pouring billions into OpenAI?
Maybe they just have more imagination than me?
Quite possibly.
Or maybe they all have their own interests, for which a failure of OpenAI would be much worse than risking an unprofitable investment.
My attempt at an explanation:
Microsoft
As OpenAI's largest shareholder and most important strategic partner to date, Microsoft is certainly dependent on the ChatGPT creator to some extent. The Microsoft growth story over the next few years is largely based on increasing revenues from the various co-pilots in Office and GitHub, as well as the AI workloads that enterprise customers host in the Azure cloud.
In addition, the rising valuation of OpenAI has an impact on the value of Microsofts OpenAI investment, which from today's perspective was acquired at a bargain price in 2019 and 2023 (the valuation at the time was less than $30 billion). Microsoft will do everything it can to strengthen OpenAI and book a ten-bagger in its holdings.
Nvidia
Nvidia has been an OpenAI shareholder since October 2024. This investment is in line with Nvidia's playbook, which in 2023 alone invested in 38 startups using Nvidia GPUs. In 2024, that was a total of about 50 rounds of funding.
I've previously discussed Nvidia's (and Microsoft's) role in the AI startup world, which I find extremely problematic, in more detail here on this Substack:
Big Tech as VC Investors: More red flags than laudable deals.
I assume that a good part of Microsoft's and Nvidia's investment in OpenAI will flow back to their own coffers via the customer OpenAI. I do not know if there are specific sales commitments this time, as there have been in previous rounds between Microsoft and OpenAI.
Venture Capital Investors
The VCs who have already invested in OpenAI in previous rounds are playing this game with higher and higher valuations, as long as they can raise more and more money for their new funds with the fashionable topic of AI.
They are primarily interested in seeing the valuation of their portfolio companies rise. And so they will be happy to give OpenAI more money even at a $300 billion valuation, i.e. another doubling in 12 months, because it allows them to mark up an existing stake and thus show a high book profit, which helps when raising new capital.
Am I the only one reminded of a Ponzi scheme here?
What is really interesting is which NEW investors are coming in at the current $300 billion valuation: In 2024, the new investors at a valuation of $157 billion were Cathie Wood's ARK Invest, Softbank, and MGX, a sovereign wealth fund from the United Arab Emirates. You can judge for yourself what you think about these investors. I certainly have not had a very positive impression of them in the past.
I am very curious to see which new investors will join SoftBank for the first time in the upcoming 2025 round at a valuation of $300 billion in OpenAI. I don't have any specific information on that yet.
After The Funding Round Is Before The Funding Round
If OpenAI really gets $40 billion in equity in this round, then Sam Altman has raised a total of $60 billion. The interesting question is how long that money will last.
I assume that OpenAI could fund its operations for 2-3 years with the $40 billion capital injection. But Sam Altman also wants to finance the gigantic Stargate project with $18 billion, and so on...
The OpenAI CEO explained some time ago that at least $100 billion will be needed to achieve the company's ambitious goals. So what happens when OpenAI needs to raise money again?
If the valuation can double to $600 billion, that's no problem; all the previous investors will be happy to come on board again. Microsoft and Nvidia for the well-known reasons, the VCs with SoftBank are happy about the further mark up to their portfolio values and everybody is happy.
But what if the sentiment changes and no new investors can be found because, for example, revenues stop growing explosively or the realization sets in that the breakthrough to true AGI is not to be expected in the foreseeable future?
Then OpenAI could very quickly implode in the face of uncontrollable cash burn.
It wouldn't be the first time that venture capitalists had to explain to their clients why they had to write down their investments after a hype. For them, this is business as usual. The risk of not investing in a disruptive innovation weighs heavier. It's just venture capital. For other OpenAI investors like SoftBank, the crash would likely be more painful.
It would be especially bad if millions of small investors ended up with OpenAI shares in their portfolios. But for that to happen, OpenAI would first have to pull off by far the biggest tech IPO the world has ever seen. I am very skeptical that this will ever happen.
But let's wait and see. With Sam Altman and CFO Sarah Friar, the company has two of Silicon Valley's best storytellers, who should never be underestimated.
Conclusion
The AI hype enters the next round with OpenAI's huge funding round. The company seems to me to be massively overvalued at $300 billion, as there is no working, scalable business model in sight. I see a big risk that under Sam Altman OpenAI will go bankrupt in the next few years or have to be rescued by a takeover, e.g. by Microsoft or Elon Musk, at a drastically lower valuation.
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*Disclaimer: The author and/or associated persons or companies DO NOT own any shares of OpenAI. This article is an expression of opinion and not investment advice.