Prediction for the future: OpenAI IPO's lots of money changes hands, it chugs along for a while, hits a hard spot and then is taken private for pennies on the dollar by Microsoft.
Prediction for the future: OpenAI IPO's lots of money changes hands, it chugs along for a while, hits a hard spot and then is taken private for pennies on the dollar by Microsoft.
Jacques, I've been reading and enjoying your posts here for at least 15 years. (Thank you for your service.)
But I think you're totally incorrect on this; oAI is going to be one of the enduring tech consumer brands built in this half of the 21st century.
Time will tell. I've been wrong before. Note that I'm not saying that OpenAI will disappear, just that it will end up as a wholly owned subsidiary of Microsoft.
> oAI is going to be one of the enduring tech consumer brands built in this half of the 21st century
I am curious why you think that, they're early to market but that by no means guarantees them a long term place at the table.
Why do you say so? They’re burning cash and don’t currently have a viable path to profitability. Sure they have millions of MAU but not many paying ones.
Look at all the companies that have 'burned cash' with no viable path to profitability over the last 20 years. The good ones outlive that criticism, easily. Think Uber, etc. They clearly see a path to profitability and they have plenty of room to experiment here with what works. With new partnerships and dependencies, they won't run out of cash for a long time.
I don’t know the exact numbers, but I feel like OpenAI raised far more money than those companies, burned through it far quicker and has much more competition with a much shakier value proposition.
They definitely have a strong consumer brand so it’s not like they’re going to disappear, but I understand the bear case.
Sam A is pretty well connected and knows the game well. No doubt there will be some risks where the whole thing goes right down to zero, but I personally wouldn't bet against them.
I'm sure Sam A will be fine, an IPO will probably see him ride off into the sunset with billions.
The average public investor buying pre-IPO shares, though, is a different story.
I wouldn't bet against Sam Altman personally, but that's very different from betting on OpenAI.
I would not be convinced they outlive the criticism.
I think it's highly likely in the next 10 years companies like Spotify and Uber will no longer exist. They're fundamentally antogonistic to their capital.
Spotify is a profitable business now though right? Sure it doesn’t make huge profits due to paying out about 70% to larks but it’s finally profitable
Yes, barely, and after cutting revenue per stream to 1/4th of what it was. Many artists make negative money on Spotify, because you have to pay them to put your music on there. And then if Spotify thinks bots are listening to your streams, you have to pay them more.
It's the same problem for Uber. Many Uber drivers make a negative wage. They don't know it, because nobody is going to tell them, but if you do the math, depending on your location, vehicle, and rates, you make a negative wage. Due to gas cost, tolls, maintenance, etc.
The problem here is that the uber drivers and artists are the only thing that makes the platform worth using. Spotify might think their capital is technology. That's because they're stupid. No, their capital is the library of music artists put on there.
If you continue to just antagonize and destroy your own capital that you're using to make money, your business will be blow up.
I think it’s a bit disingenuous to say that Spotify “cut” the revenue per stream. Spotify doesn’t have a fixed revenue per stream, payouts are dynamic and based on how much revenue it made and how many streams there are in total. Also Spotify gives something like 80% of its revenue to the music industry.
It’s essentially a pie that gets divided up amongst all artists by steam count. If your friend’s garage band are angry that they only get 0.001 cents per stream then they should be angry at Spotify listeners for streaming too much Taylor Swift!!!
Furthermore to pay the artists Spotify has to pay the labels and of course they take a giant cut. This trope of Spotify being an evil corporation is unfair
I don't think Spotify is evil, but I do think their business model doesn't make sense.
I mean, it sounds great. Pay 10-15 bucks a month and listen to all the music you want, whenever you want. What an amazing business idea!
But has anyone stepped back and asked if this is actually possible? Because when your artists are getting paid crumbs I don't see how this system continues.
100% agree. I think the subscription should be more like $30/$40 per month based on the value you get but of course users would never pay that!
So I wonder if there would ever be a middle ground between what artists would accept and what users would pay?
I’ve written about it at some length here, but tldr: their ops are super profitable, likely 1bn per month net income right now. Their R&D costs are immense. You need to believe a story in which their R&D is a waste and other Competitor’s R&D is not or alternately all R&D in the space is a waste and they somehow are unable to use their capital advantage to maintain their substantial brand lead before you believe they are doomed.
> With an annualized revenue run rate expected to reach about $20 billion by year-end, losses are also mounting inside the $500 billion company, the people said.
There is a time limit for shareholders to make return on that investment and so far their operating costs are astronomical given they don't yet seem to offer any substantial product that can't be without, if anything, they're pushing people further away from AI with the slop their churning out.
reference : https://www.reuters.com/business/openai-lays-groundwork-jugg...
I have always thought it would eventually be owned my Microsoft. The only uncertainty is the path it takes to get there.
Given the froth in the market right now, I think there is a good chance the IPO gets scrapped if we are talking mid 2026. An IPO at a trillion would work right now but mid 2026 is a long ways away.
Like how the Deepseek moment feels like ancient history but it wasn't even a year ago.
Could you elaborate? Not looking for a proof, just want to understand your train of thought. Always liked your commentary. Thanks!
An IPO is traditionally thought of as a way to raise capital in amounts that are not available privately, but more recently IPOs are just a way to transfer vast amounts of wealth from speculating retail and institutional investors to stakeholders. The IPO itself is the least interesting thing: if Microsoft wanted they could avoid the IPO and instead offer to buy the shares beforehand.
If the financial future of OpenAI is not as rosy as they say it is then there is a fair chance that post IPO the stock will not rise. There are plenty of signs that this is the case, including the 'erotic' version of ChatGPT slated for release in December, the strong push to monetize even the most inane interactions and the mention of advertising as a possible source of income. All of those combined tell me that OpenAI is seriously worried about their bottom line.
But Microsoft already has a bottom line and AI is the one way in which they could put one over on Google, which they've been dying to do for many years.
So the logical progression to me seems to be:
- do the IPO, everybody associated with OpenAI will be filthy rich (including MS)
- attempt to polish up the financials
- if that fails activate plan B, have Microsoft make an offer to take OpenAI private again
The hype around this IPO increases the chance the stock will drop post IPO.
Spitballing
There is no clear path to the trillion dollars today. By IPOing, the owners (who have a good idea of where it's going) can exchange their ticket to the trillion for cash today.
Seems like a bad deal unless you know the ticket won't get called. Then you've just made bank.
And you might have noticed some form of hype around AI these last few years - arguably this could be to make the trillion dollar seem more realistic and therefore making the owners more money when selling their ticket to it.
Probably predicting either pop of AI bubble like dotcom in 1999 or the OpenAI emperor has no clothes and the marker sees its shrunk hunk.
Open AI will probably have the highest market cap of any company in the world on the opening day of trading.
that would be certifiably insane
my prediction is that the ai-bubble pops no later than when openai files for its ipo. openai has an incentive to keep its finances outside of the prying eyes of the public shareholders. This way their mystique is kept in tact, and nobody can question their capex and datacenter investment claims. But, it is becoming difficult since msft now reports on their openai holdings.