Thursday Sep 28 2023 10:57
7 min
OpenAI, the artificial intelligence (AI) startup behind popular chatbot ChatGPT, is in discussions with investors about a potential sale of existing shares at a much higher valuation than a few months ago, according to reports by Reuters and the WSJ citing sources familiar with the matter. The potential valuation could triple to a range between $80 billion and $90 billion, which would make OpenAI more valuable than publicly traded AI giants like Microsoft (MSFT), Alphabet (GOOG), and Nvidia (NVDA) by at least one metric.
According to a report by The Wall Street Journal, OpenAI is planning to allow employees to realize gains by selling their own shares to external investors — rather than the company issuing new ones. In the past, venture firms have acquired OpenAI shares through tender offers.
The publications’ sources have indicated that the company has informed investors of its expectation to achieve $1 billion in revenue this year, with projections of generating billions more in 2024.
While the basic version of OpenAI's ChatGPT remains free, the company has been monetizing advanced features for individual users. Businesses seeking to integrate OpenAI's extensive language models into their products have also been paying for licensing.
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At a $90 billion valuation, investors would be valuing the company at $90 for every dollar of revenue generated this year, surpassing the valuation multiples of some of the most highly-priced tech firms in the public market.
Microsoft and Alphabet are notable pioneers in the AI software sector. Microsoft has made billion-dollar investments into OpenAI, ultimately securing a 49% ownership stake in the company. Meanwhile, Alphabet is gearing up to launch its AI initiative, Gemini, as it aims to compete with OpenAI's most advanced large language model, GPT-4.
However, neither of these tech giants boasts the potentially astronomical valuation that OpenAI could attain.
Microsoft currently commands a market capitalization of $2.3 trillion, with Alphabet following closely at $1.6 trillion. Projections indicate that the firms' respective revenues for the calendar year 2023 are expected to reach $222 billion for Microsoft and $305 billion for Alphabet. This implies that the market is assigning valuation multiples of approximately $10.50 and $5.30 for each dollar of revenue generated by Microsoft and Alphabet, respectively.
If the deal is finalized, it would represent the second major share sale for the renowned San Francisco-based startup, marking a remarkable surge in its valuation.
In April, the company secured funding from backers such as Sequoia Capital, Andreessen Horowitz, Thrive and K2 Global, in a share sale worth $300 million at a valuation of $29 billion. The sale occurred separate to a large investment from Microsoft, which closed in January. Microsoft’s investment was believed to be around $10 billion.
The news didn’t have a significant impact on Microsoft shares, which traded 0.21% higher to $312.79 Wednesday, on what proved to be an all-around mixed trading session for the stock market, with the S&P 500 Index (USA500) rising 0.02% to 4,274.51 and the Dow Jones Industrial Average (USA30) falling 0.20% to 33,550.27.
Despite the popularity of OpenAI’s generative AI assistant, ChatGPT, which allows users to generate essays, poems and summaries from simple text-based prompts, the company currently has no plans to enter the public market.
Chief Executive Sam Altman has said he has no intentions for OpenAI to go public soon or for the potential sale of the firm to a buyer:
Artificial intelligence (AI) is a rapidly growing market, which could grow to $1.3 trillion over the next 10 years from a market size of just $40 billion in 2022, according to a recent report by Bloomberg Intelligence. The growth is anticipated to be fueled by a remarkable compound annual growth rate (CAGR) of 42% from 2022 to 2032, with the Asia-Pacific region, especially China, expected to lead the charge in AI expansion.
AI is poised to bring about more diverse and personalized products, enhancing attractiveness and affordability through efficiency improvements for both consumers and producers. According to a study by PwC, China's GDP could surge by 26% by 2030 thanks to AI, with North America expected to experience a 14.5% boost, equivalent to a total growth of $10.7 trillion solely from efficiency gains.
Another study by McKinsey & Company forecast the generative AI market to add the equivalent of $2.6 trillion to $4.4 trillion to the global economy annually.
AI is not just a passing trend — it's here to stay, making things faster and smarter across the entire economy. While chatbots are currently making significant waves, it appears that companies are only beginning to tap into the potential benefits that AI can offer to global businesses, presenting potential opportunities for investors.
Markets.com reviewed some of the AI market players to look out for earlier this year.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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