OpenAI, a major player in artificial intelligence, is reportedly in discussions to secure new funding that could push its valuation above $100 billion.
This move would represent the largest capital influx for the company since Microsoft’s $10 billion investment in January 2023. Sources indicate that venture capital firm Thrive Capital is expected to invest $1 billion in this funding round, with Microsoft also likely contributing additional capital. Microsoft, which currently owns a 49% stake in OpenAI, has already invested $13 billion in the company since 2019. Internal documents reveal that OpenAI stockholders have been negotiating deals to sell their shares, which would value the company at around $103 billion. Even before accounting for the new funds raised, we expect any new investments to align with or exceed this valuation. Earlier this year, OpenAI allowed employees to sell their shares, reflecting a private valuation of approximately $86 billion.
As discussed back in July – OpenAI will have to raise more money than has ever been raised to survive, and on top of that, they will have to raise at a higher valuation than any privately-held company ever has.
— Ed Zitron (@edzitron) August 28, 2024
This isn't sustainable. https://t.co/EXrQzXliVS https://t.co/pH0BkyFgUD pic.twitter.com/4R4pkPcsYN
Despite OpenAI’s relatively modest earnings, the company continues to attract significant investor interest. The firm is reportedly generating annualized revenue of $3.4 billion. However, some analysts have raised concerns about OpenAI’s long-term profitability, noting that the company may need to secure unprecedented levels of funding to maintain operations beyond 2026.
There are reports that OpenAI could face losses of up to $5 billion in 2024, potentially leading to a cash shortage within the next 12 months. It’s important to note that investors in OpenAI do not hold private equity in the company itself, as it operates as a nonprofit organization. Instead, they own stakes in OpenAI LP, a for-profit subsidiary, and once they reach a predetermined cap, they will receive a share of its profits.
This potential new funding round comes as competition in the AI sector intensifies. Companies like Google, Amazon, and Meta are making significant investments in AI, with Google’s Gemini, Amazon’s investment in Anthropic, and Meta’s Llama 3.1 all vying for market dominance. OpenAI’s ability to secure additional funding will be crucial in maintaining its leadership position in this rapidly evolving industry.
