The Red-Hot AI Startup OpenAI Poised to Join the Ranks of Tech’s Most Valuable Companies

John Smith

OpenAI, the artificial intelligence startup behind the conversational chatbot ChatGPT, is reportedly in talks to sell employee shares at a jaw-dropping $90 billion valuation. According to a Wall Street Journal report on Tuesday, this proposed valuation would represent a threefold increase from OpenAI’s last reported valuation of $29 billion in 2021.

At $90 billion, OpenAI would join the upper echelons of the world’s most valuable private tech companies. The artificial intelligence firm would surpass the valuations of Chinese tech giant ByteDance, the owner of TikTok, and Elon Musk’s SpaceX aerospace company. Only Stripe and SpaceX can currently claim valuations north of $100 billion amongst private tech firms.

Driving OpenAI’s meteoric rise is the runaway success of its ChatGPT chatbot, launched last November. The conversational AI tool quickly went viral for its ability to generate human-like text on virtually any topic. OpenAI has capitalized on ChatGPT’s popularity by offering a paid premium version with expanded features. The startup also generates revenue by licensing its AI models to enterprise customers.

According to sources cited by the Journal, OpenAI expects revenue to hit $1 billion this year and reach tens of billions in 2024. At a $90 billion valuation, investors would be paying around $90 for every $1 of OpenAI’s projected revenue this year – an extremely rich multiple that points to heady expectations.

In contrast, tech titans Microsoft and Alphabet, both deeply invested in AI, sport much lower revenue multiples. Microsoft, an OpenAI investor that owns 49% of the startup, has a market cap of $2.3 trillion and expected 2023 revenue of $222 billion. This implies a valuation of about $10 per $1 of revenue. Alphabet, parent of Google, trades at around $5 per $1 of expected revenue.

Even Nvidia, whose graphics chips power many AI applications, commands a lower multiple at approximately $19 per $1 of projected 2023 revenue. Of course, as a mature public company generating billions in profit, Nvidia merits a lower multiple than a fledgling startup like OpenAI. But the gap remains striking.

If OpenAI hits a $90 billion valuation, it would also surpass the multiples of other leading private tech firms. For instance, ByteDance reportedly generated $85 billion in revenue in 2022, giving it a multiple around $2.60 per $1 of revenue at a $225 billion valuation. Elon Musk’s SpaceX achieved $6 billion in estimated 2022 revenue, implying a multiple of $22.80 at its $137 billion valuation.

Granted, direct revenue multiple comparisons can be imprecise for private companies. But the numbers indicate investors are extremely bullish on OpenAI’s future monetization potential as AI goes mainstream. The startup’s valuation may also be getting an extra boost from the buzz surroundingChatGPT.

The employee share sale would set a baseline value for OpenAI if it pursues a larger funding round. More institutional funding seems plausible as OpenAI ramps up spending on product development and cloud computing. However, CEO Sam Altman has indicated OpenAI will stay private for the foreseeable future, dashing hopes of a near-term IPO.

For now, the leaders of the AI pack are raising money at nosebleed valuations unseen since the dot-com era. As OpenAI reportedly enters the $90 billion valuation stratosphere, it solidifies its position amongst the upper crust of tech’s most richly valued players. While massive investments in AI carry risks, bullish backers are eagerly betting on huge rewards in what could be tech’s next major wave.

SOURCES: Barron's
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John Smith is a veteran stock trader with over 10 years of experience in the financial markets. He is a widely followed market commentator known for his astute analysis and accurate predictions. John has authored multiple bestselling books explaining complex market concepts in simple terms for novice investors looking to grow their wealth through strategic trading and long-term investments.
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