OpenAI is in the process of raising at least $5 billion in a new funding round, aiming for a valuation of $150 billion.
TakeAway Points:
- In order to reach its goal of a $150 billion valuation—nearly twice as high as its previous $86 billion valuation—OpenAI plans to raise at least $5 billion.
- Apple, Nvidia, Microsoft, and other large investors are participating; Thrive Capital could take the lead with a $1 billion investment.
- Due to the significant costs associated with AI development and competition from Anthropic, Google, and Meta, OpenAI continues to be loss-making even with $2 billion in annual sales.
OpenAI’s Fundraising Goals
This would nearly double the artificial intelligence start-up’s valuation from earlier this year, which stood at $86 billion. The San Francisco-based company has been in discussions with several high-profile investors, including Apple, Nvidia, Microsoft, and Thrive Capital, to secure the necessary funds. Thrive Capital, a venture capital firm founded by Josh Kushner, is expected to lead the round with a $1 billion investment.
The total size of the fundraising round could potentially exceed $6.5 billion, depending on the final commitments from prospective backers. Microsoft, which has already invested $13 billion in OpenAI, is also expected to participate in this round. The discussions are ongoing, and the final numbers could change as the details are finalized. OpenAI and Thrive have declined to comment on the funding talks.
Market Competition and Financial Results
OpenAI has rapidly expanded since the launch of its ChatGPT chatbot in 2022, achieving annual revenues of $2 billion at the start of this year. Despite this growth, the company remains lossmaking due to the high costs associated with developing advanced AI models. The start-up faces increasing competition from rivals such as Anthropic, Google, and Meta. Last week, OpenAI co-founder Ilya Sutskever announced that his three-month-old start-up had raised $1 billion at a $5 billion valuation. Additionally, other AI-focused start-ups like Anthropic and Elon Musk’s xAI have also raised billions of dollars in the past year.
A valuation of $150 billion would position OpenAI as one of the most highly valued start-ups globally, trailing closely behind Elon Musk’s SpaceX. The fundraising round comes amid growing concerns about a potential bubble in the AI sector, with investors pressuring AI model makers to generate returns as the costs of building and training models continue to rise. Several smaller competitors, including Character.AI, Adept, and Inflection, have been acquired by larger tech companies over the past year.
Market position and strategic investments
The involvement of major tech companies like Apple, Nvidia, and Microsoft underscores the strategic importance of AI in the technology sector. Microsoft, already a significant investor in OpenAI, has committed substantial resources to the start-up, reflecting its confidence in OpenAI’s potential. The participation of Apple and Nvidia, the two most valuable publicly traded companies in the world, further highlights the competitive landscape and the high stakes involved in AI development.
OpenAI’s products, which include the ChatGPT chatbot capable of generating realistic images and human-like text from minimal prompts, have captured significant attention from both consumers and investors. The company’s ambitious plans to develop AI models that can outperform human intelligence aim to give it a competitive edge over rivals like Anthropic, Google, and Meta.
