OpenAI's future IPO frenzy
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Wall Street is licking its chops at the mere prospect of an OpenAI IPO, which could unleash a financial frenzy with little precedent if and when it arrives.
Why it matters: A stock offering — potentially two years away — is driven by necessity.
- The company says it will require trillions of dollars to develop its AI systems, a goal that could make an IPO unavoidable.
The big picture: The world's most important AI company going public would signal a new phase of maturity for an industry that didn't exist all that long ago.
- Just as the blockbuster IPOs of Facebook and Twitter in the 2010s marked a new era for social media, OpenAI going public would further cement AI's position in the economy.
Driving the news: CEO Sam Altman said Monday that an IPO is the "most likely" option for the company.
- Reuters reported that OpenAI could file for an IPO by late next year that would value the company at $1 trillion, which is twice its current valuation.
- The actual stock market debut likely won't happen until 2027.
What they're saying: OpenAI "will need to raise hundreds of billions of dollars over the next few years. Much of it is going to have to come in the form of debt. But in the meantime, they're also raising equity," Gil Luria, managing director at D.A. Davidson, tells Axios.
- After already raising billions from Softbank, Nvidia, Microsoft and others, OpenAI still needs more money. One way to achieve that: going public.
- But AI is a "speculative investment" best funded with cash, Luria said, since it carries less risk if demand falls short.
OpenAI needs a steady way to get fresh capital onto its balance sheet — and just going public likely won't meet needs that are on a different plane than anything seen in tech before.
- The company has already committed $1.4 trillion in infrastructure through deals with partners including Oracle, Nvidia, SoftBank and AMD.
- Altman says he'd like to crank that up to $20 billion per week (more than $1 trillion a year) if he can figure out the technical and financial means to do so.
State of play: The company is losing a ton of money. Microsoft on Wednesday reported a quarterly loss of roughly 4 billion that it attributed to its share of OpenAI's losses
- A report from The Information last month says OpenAI expects negative cash flow of around $8 billion this year.
Reality check: OpenAI, for its part, says it has no set time in mind for an IPO.
- "An IPO is not our focus, so we could not possibly have set a date," it said in a statement. "We are building a durable business and advancing our mission so everyone benefits from AGI."
- Even if OpenAI does want it to happen sooner rather than later, this seems at least 18 months away and that's an eternity in AI years.
Between the lines: Spending that much also means boosting revenue. Altman has said he sees a clear path to getting to hundreds of billions, though he hasn't offered specific plans.
- Much will have to come from large corporations.
- But Altman says he also wants the consumer side to contribute more than can be achieved through paid subscriptions.
- "They need capital desperately in order to grow to the scale where they can be competitive with Google and Meta and others," Luria said.
What we're watching: If companies take on heavy debt to chase AI monetization opportunities that don't materialize, "that could take the whole economy down," Luria said.
What's next: OpenAI may deny that an IPO is on its mind, but the company's survival may depend on how fast it can turn hype into investment.
