OpenAI poses new investors an intelligence test

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Grappling with the science of artificial intelligence isn’t for the weak of heart. The same is true of investing in OpenAI, the purveyor of productivity-enhancing chatbots.

A $6.6bn injection of investor funds, which OpenAI announced on Wednesday, gives Sam Altman’s nine-year-old company a post-money valuation of $157bn. It adds Japan’s SoftBank to a list of investors that already included Microsoft, Jared Kushner’s Thrive Capital and Khosla Ventures. For a company whose founder envisages “shared prosperity to a degree that seems unimaginable”, the price might seem cheap. To say the reality is more complex would be an enormous understatement.

Altman’s investors will have had to get comfortable with at least four levels of intricacy. There are the products themselves, of course, so advanced they can answer PhD-level questions on physics. More head-scratching is OpenAI’s governance. Altman was ousted last year, then swiftly returned. Multiple executives have since donned their virtual parachutes. Supreme power theoretically vests in a board meant to ensure OpenAI benefits humanity; Altman’s hokey-cokey showed its toothlessness.

Would-be backers also need to navigate finnicky financial engineering. OpenAI is essentially a non-profit company in charge of a for-profit. Investors own a share of future earnings, with returns capped at a certain level. Undoing both of those features is not a simple process, practically or politically. There is ample potential in whatever emerges for misaligned incentives between various vintages of investors and executives like Altman.

No less murky is the business model. OpenAI hopes to turn out $100bn of revenue five years from now, the New York Times has reported. But how? If it can double the price of its paid version of ChatGPT to $44 a month per user, as it reportedly hopes to, that might suggest nearly 200mn paying customers, about half as many as pay to use Microsoft’s Office 365. But predicting demand for products that don’t yet exist is a fool’s errand. Likewise, ascertaining the cost of feeding ever-godlier models with chips and energy.

At a valuation of $157bn, OpenAI investors are paying about 13 times the company’s estimated $12bn in 2025 revenue. That might seem modest: fellow AI icon Nvidia trades at 18 times, according to LSEG data. Then again, Nvidia is lavishly profitable, while OpenAI is burning $5bn a year. True, losses are common in tech. Back in 2017, Tesla had $12bn of revenue and $2bn of losses. The carmaker’s market capitalisation, though, was a more modest $50bn.

For now, OpenAI is less of a company, and more of an idea. Granted, it’s an exciting one. If Altman’s models scale Olympian heights, so might his company’s value, as Tesla’s did. But investors making that call today must surely be powered more by instinct than intelligence.

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