OpenAI might be the future of Silicon Valley, the next Google, the Great Disruptor, the slayer of late capitalist workplace tedium, etc.
However, as the business transitions from a nonprofit-led research lab to a for-profit AI powerhouse, now is a good time to examine OpenAI and its brilliant (if often tumultuous) leadership team. Because, if we believe OpenAI’s fundamental assumption that better-than-human artificial intelligence is unavoidable, and that it is the best brand to harness that potential, it’s worth pausing to ask the age-old business question: Really?!
Here is the deal: OpenAI, the startup behind ChatGPT, recently secured a $6.6 billion private investment round – the largest in Silicon Valley history — giving the fledgling company a $157 billion valuation, despite an uncertain route to profitability.
OpenAI Just Secured A Ton Of New Cash. Now It Needs To Wow Us
(For reference, public corporations with comparable valuations include Goldman Sachs and Pfizer.)
According to reports, OpenAI’s latest investors include major tech companies such as Microsoft (which has already invested more than $13 billion since 2019), Thrive Capital, Nvidia, Cathie Wood’s Ark Investment Management, and Japanese conglomerate SoftBank.
But it’s worth remembering that Apple was in talks to join that scrum, but it backed out at the last minute, according to The Wall Street Journal.
It was unclear why Apple, which did not respond to CNN’s request for comment, appeared to back out.
That being said, the iPhone maker does not engage in many strategic alliances.
But you don’t need an MBA to notice several red flags about OpenAI’s operations and the true worth of its technology.
According to the New York Times, the corporation appears to be spending significantly more money than it is coming in.
Let’s run some numbers:
OpenAI hopes to generate approximately $3.7 billion in revenue this year. (This revenue is mostly derived from ChatGPT premium subscriptions and the licensing of its technology to third-party developers.)
However, the Times estimates that it will incur costs of $5 billion.
(That’s not ideal, but it may not be a dealbreaker for a young, buzzy firm with big goals like OpenAI’s.)
Here’s where it gets a little wild:
Next year, OpenAI expects its income to more than triple to $11.6 billion. (To which I respond, with all due respect: Really?)
By 2029, it expects to generate $100 billion in revenue. This represents a more than 2,600% gain over the following five years. (Again: Seriously?!)
It’s unclear how, or if, OpenAI is striving to reduce its substantial cash burn. (The business declined to respond to The Times and CNN.)
When I asked Gil Luria, a managing director at D.A. Davidson, if my OpenAI pessimism was justified, he politely pushed back.
“The path from $0 in revenue to nearly $4 billion was clearly the fastest in history,” Mr. Luria added. “Nobody’s ever grown this fast at this scale, and they’re doing it again straight out of the gate with only the first few evolutions of their product set.”
Fair!
However, Luria stated that in order to reach $11 billion in revenue, “a lot of things have to go right, and very little can go wrong.”
What about that $100 billion prediction for 2029? “It’s completely unrealistic,” he admits. “It has nothing to do with reality.”
One approach for OpenAI to enhance its margins is to reduce costs. Even if it becomes extremely meticulous, the generative AI business faces an economic quandary: training and operating huge language models costs a lot of money, which is a structural cost that varies from prior tech booms, as CNBC reported last year.
In other words, the more people use ChatGPT, the more it costs to “compute,” as the business refers to it. Running these massive language models necessitates the use of numerous powerful semiconductors within massive data centers that consume a lot of electricity. It’s no surprise, however, that practically every major AI player wants to get their hands on good old-fashioned nuclear energy (as I discussed here earlier this week).
OpenAI’s challenges include more than just the economics of AI.
There’s also a Bravo-worthy soap opera going on with its founders, nearly all of whom have gone, and board of directors.
In 2015, CEO Sam Altman and ten others launched OpenAI as a nonprofit with the purpose of “building safe and beneficial artificial general intelligence for the benefit of humanity.”
OpenAI Just Secured A Ton Of New Cash. Now It Needs To Wow Us
Then it evolved into a hybrid: a for-profit firm led by a nonprofit board.
With 1,700 workers, it is now prepared to mainly abandon the nonprofit model in favor of a “public benefit corporation” — effectively a for-profit company with do-gooder intentions.
Several executives have left during this transition, raising concerns about Altman’s devotion to the firm’s initial objective in the face of, say, boatloads of cash.
What happens now? With new funding, OpenAI can focus on the next iteration of ChatGPT, which, according to Luria, is one of the Big Things that must go right for the company. Whatever OpenAI’s next product looks like, it must knock our socks off.
“If we’ve gone from a model that’s as smart as a high school student to GPT-4o being as smart as a PhD student, the next version must be getting us closer to a model that’s smarter than any human.” to make the investment worthwhile.”
SOURCE | CNN
