OpenAI's $150B valuation hinges on upending corporate structure, sources

https://www.reuters.com/technology/artificial-intelligence/openais-stunning-150-billion-valuation-hinges-upending-corporate-structure-2024-09-14/

by pseudolus • 2 years ago

86 133 2 years ago

reuters.com

paulpauper• 2 years ago

Open Ai must be making some mad earnings that are not disclosed. Huge contracts I suppose. Meta was worth $100 billion pre-IPO but they were obviously very profitable and had lots of advertisers. It reminds me of Tesla. During 2020-2021 the stock went up 20x and it seemed irrational and the biggest bubble ever, but fast-forward to 2024 and Tesla cars everywhere especially in the Bay Area. The market correctly anticipated Tesla's popularity.

martinky24• 2 years ago

Tesla is still very much a bubble. What about Tesla implies they should be worth that much more than, say, Toyota…?

jtriangle2• 2 years ago

Massive amounts of anti-fossil fuel powered car legislation being passed, or being talked about, and Tesla being the clear market leader in the electric vehicle space.

buzzerbetrayed2• 2 years ago

I’m not saying the should be valued higher. But it is at least notable that a Toyota has been the best selling car every year for the last 20 or so, until last year when it was the Model Y.

Meanwhile Toyota has been caught unsure of if they should build gas, electric, or hydrogen cars. Fortunately, as a fan of Toyota’s cars, it seems like they’ve figured out a good strategy forward. But for every Toyota there is a BlackBerry, IBM, Reebok, or Blockbuster who doesn’t figure out how to adapt to a changing market in time.

jillesvangurp• 2 years ago

Valuation is based on future, not past performance. Toyota is looking a bit stale and weak lately. They are loosing market share. Amongst others to BYD and Tesla in a market that Tesla single handedly created. And Toyota's portion of that is so pathetic it's barely worth talking about.

It's gotten so bad that Toyota is currently actually outsourcing EVs to BYD at the same time that company is grabbing market share from them. Not a great look if you have to ask your fastest growing competitor to please build a product for you.

Tesla is of course taking a few big bets that may or may not pay off. Many people are rightfully somewhat skeptical about all that but it is a bit disingenuous to portray them as just a car company given their growing number of "definitely not a car" type products and services. E.g. battery storage is bringing in quite a bit of revenue now for them and is one of the things that is rapidly growing. And of course the whole robots, AI, and FSD angle has lots of potential. Regardless of whether you believe Tesla can do that or not.

This article is about OpenAI who is getting quite stellar valuations in that area. Tesla is of course part of that market. Toyota very much isn't.

In short, Tesla might fail or they might succeed. In the same way Toyota might recover or they might not. To be honest, both companies have issues. But I have more confidence in Tesla than Toyota. Toyota seems a company without ambition and vision. Tesla can't be accused of that. Toyota's vision is to do what all their competitors are doing right now but in ten years. Tesla's vision is to do in ten years what nobody is doing right now.

Again, you might not believe in any of that. But you might be wrong. That's the gamble you make in the stock market with either company. And the share price is just a reflection of what people buying shares right now believe.

jordanb• 2 years ago

The market correctly anticipated Tesla's popularity.

It seems like the market has priced in gains that have yet to materialize in Tesla's fundamentals. They're still far smaller than auto makers with much lower valuations.

jjulius3• 2 years ago

The market correctly anticipated Tesla's short-term popularity.

FTFY

reducesuffering2• 2 years ago

If you're going to make a 4 letter comment, at least be correct. Tesla in no way could be thought of as "short-term popularity." Every year, they've had increasing sales, about +20% between 2022 to 2023, and their latest quarter is still the highest sales of any quarter, on track to make $100 billion annual.

kaliqt• 2 years ago

That is not based in reality at all though.

mattmaroon5• 2 years ago

Tesla sells like 1% of the cars and has like 50% of the market cap, and it’s not because their margins are so high.

All the market correctly predicted is that the market would continue to incorrectly predict their value.

As a mental exercise, imagine there’s a bubble that went on for 5 years. They sometimes go that long or longer. Do you not think 3 years in people would think they were seeing the market just having been correct the prior few? It would look exactly the way you view this.

tarsinge• 2 years ago

All the market correctly predicted is that the market would continue to incorrectly predict their value.

I don’t understand why so many don’t get this, especially after crypto currencies became a thing. The token can be DOGE or TSLA, the mechanism is the same, only marketing and PR content change, reality doesn’t matter. In fact Musk already said Tesla is not a car company anymore. Crypto opened the eyes of a lot of smart CEOs, and not in a good way, and investors look away as long as the dance continue.

dkrich3• 2 years ago

This has been a phenomenon of the endless liquidity train of the past 3-4 years. People doing very stupid things with money knowing more is always coming. There are certain stocks like palantir that are very obviously in bubbles where the market celebrates its inclusion in a stock index and sends the shares up 15%. The CEO just self produced a video recognizing retail traders and using the term “tendies.” The mistake this cycle though has been to assume that won’t work

JSDevOps• 2 years ago

The world is bigger than the Bay Area

jewelry• 2 years ago

I’d guess it’s some contracts that’s valueated at high multiple for all kind of reasons, like it’s enterprise deal so it’ll be there forever and only increase the amount; the apple deal probably was known back then but only public recently; the influential type of customer that could help them break into particular industries;

tazu• 2 years ago

"AI reminds me of the internet in 1999." -- Peter Thiel[1]

[1] https://www.youtube.com/watch?v=SYRunzR9fbk

ramesh31• 2 years ago

AI reminds me of the internet in 1999." -- Peter Thiel[1]

It just feels like we're still in the pre-Navigator days though, circa '94. All of this complex orchestration work needs to be baked into a single model. I don't want to learn how to implement a multimodal agent system. I want to tell something what to do and have it do it for me perfectly with no more interaction than a simple prompt. Fortunately this is just a software engineering problem now, not a CS one.

tmpz22• 2 years ago

The UI is also trash for many workflows. Copy paste? Little comment based autocomplete? We can't do better then that at all?

kylecazar• 2 years ago

I agree completely. The companies I'm currently most excited about are all working on making some sort of E2E platform, weaving together all of the component pieces into a cohesive whole.

threeseed2• 2 years ago

As someone who remembers that time very well I disagree.

Smartphones followed a similar path to the internet i.e. completely new paradigm, that had immediate benefit but needed technology to improve to become widely adopted. But where the roadmaps to improve these technologies were clear and well defined.

AI is far more akin to nuclear fusion where each step along the way will require major scientific breakthroughs. And where it's not clear how to get this grand AGI end-game. Especially as OpenAI has said advancements depend on compute capacity that we simply don't have.

[1] https://openai.com/index/learning-to-reason-with-llms/

bb88• 2 years ago

I think it's more like nuclear fission, frankly. I don't think the major breakthroughs will be as difficult to achieve, but we'll have a trail of nasty side effects and bad actors that will be left in its wake.

In 2020 I never thought an AI would code for me. And now it turns out, it's pretty good. But AI Slop is pretty much a toxic mess.

CSMastermind• 2 years ago

Even with their current capabilities, these AI systems will dramatically improve productivity. We could have a 20-year AI 'winter' with no new advancements, and they'd still be a big deal.

The thing is that it will take years to integrate them into existing domains and workflows. Honestly I think the most relevant comparison is the rise of desktop computers themselves. Suddenly paper-based processes had to become electronic and in some cases that took 40 years.

tbrownaw3• 2 years ago

AI is far more akin to nuclear fusion where each step along the way will require major scientific breakthroughs. And where it's not clear how to get this grand AGI end-game.

We have AI now. We've had it for ages. We just stop using that term for things once we've gotten them working.

We also already have artificial entities that are smarter and more capable than a lone human, and have for a long time. Bureaucracy and writing are incredibly powerful technologies, especially when combined.

yumraj• 2 years ago

Wasn’t that followed by a dot-com bubble burst, and then things actually started taking shape.

So are we expecting a ai bubble burst as well?

xyst• 2 years ago

News of the fed rate cut and the ultra hyped valuations are returning.

dehrmann4• 2 years ago

There are only so many places you can put your money--treasuries, bonds, real estate, equities, precious metals, crypto. With interest rates going down, fixed-income looks a lot less interesting, so... real estate? Equities?

rvz• 2 years ago

The pyramid scheme of raising money each year to avoid self-bankruptcy of billions of dollars worth of inference and training costs a year now must expand to investors in the middle east. (As US investors are almost out of cash and averaging themselves up.)

This scheme will soon become unsustainable like the last time the tech industry corrected in 2022.

Hopefully the participants don't experience any down-rounds or devaluations along the way. (It happened to many over-valued startups like Klarna, and Stripe and OpenSea.)

d--b• 2 years ago

Why do you say the middle east isn’t already in?

CuriouslyC• 2 years ago

OpenAI is going to end up in Microsoft's pocket.

_fat_santa• 2 years ago

My prediction is this.

1. OpenAI hypes what they could do with their AI to get insane funding rounds (we are here)

2. OpenAI takes that money and tries to build the thing that they pitched in #1.

3. They will struggle to meet the goals set out in #1 and funding will slowly dry up

4. Training costs will overwhelm them and they will go bankrupt

5. MS buys them out for pennies on the dollar and integrates their models with their Copilot brand.

Yizahi• 2 years ago

It is already there. Microsoft has intellectual property rights any pre-AGI innovations OpenAI makes, and most of the investment they have paid was in the Azure credits iirc, so basically in company scrip. And MS helped Sam oust rebels in the company and return. I would honestly consider them a part of MS now.

fakedang3• 2 years ago

The Middle East is desperate to get out of oil. Heck, UAE has a Ministry for AI. And Saudi Arabia already gave a hundred billion to Softbank to burn, I'm surprised they haven't Khashoggi'd him yet.

petra2• 2 years ago

If they do that, no one who invests(or builds) risky stuff will ever work with them again.

And Sam Altman is trying to rauise trillions from them for a chip factory...

John23832• 2 years ago

While I do believe the ever increasing “more money for a trillion dollar ai company scheme” is not infinitely viable, in what world are us investors running out of money?

Hopefully the participants don't experience any down-rounds or devaluations along the way. (It happened to many over-valued startups like Klarna, and Stripe and OpenSea.)

Klarna is a debt as a service company. They were made to exist in an easy money world.

Opensea is a fraud as a service company. They existed in the crypto (more specifically nft) craze.

Stripes down round was due to changing economic winds, nothing due to the softening of their business

None of these are analogous to OpenAi.

mattmaroon5• 2 years ago

Seems pretty obvious everyone involved wants to cast off the not for profit structure and make a trillion dollars. Might as well get it over with.

Nevermark• 2 years ago

It’s very hard to separate profit maximization from investment/progress/impact maximization.

Handicapping the former inevitably handicaps the latter.

That might be ok in a backwater area where speed of progress wasn’t vital. But AI today is not that.

Maximizing resources is an important dimension of maximizing progress in any fast paced & expensive endeavor.

And resources, to be sustainably obtained, require offering comparable or better returns than your competitors.

brigadier132• 2 years ago

Yes, profit incentive is generally a good thing.

dimal• 2 years ago

I wish they would be at least forced to change their name. It’s like if Exxon called themselves The Free Renewable Energy Company. It’s misleading to consumers. In tech, we all know it’s BS, but the average consumer might not. It seems like an argument could be made that “OpenAI” in violation of FTC truth in advertising rules.

frou_dh2• 2 years ago

It could be a lot more closed than it is, from a general public perspective. i.e. the company having this cool AI and we not even getting the opportunity to use it at all.

DebtDeflation• 2 years ago

the not for profit structure

Vast oversimplification.

It's difficult to get your arms around the absurdity that is the OpenAI corporate structure. A non-profit parent entity with a wholly owned for-profit subsidiary (actually, the non-profit wholly owns and controls a third "manager" entity which in turn is the controlling but not majority shareholder of the for-profit subsidiary) where the profit of the for-profit entity is "capped" and oh by the way, that for-profit subsidiary has a 49% shareholder who happens to be Microsoft. However, Microsoft, despite having 49% ownership of the for-profit subsidiary, gets 75% of their profit..........until their initial investment is recouped. Employees get Profit Participation Units (PPUs) which are NOT equity but which entitle employees to a percentage of profits, again up to the "cap". Then of course, when OpenAI achieves AGI, whatever the hell that is, then everything from that point forward reverts back to the non-profit entity and Microsoft, other investors, and employees get hosed.

cma• 2 years ago

They had already removed the cap:

https://www.economist.com/business/2023/11/21/inside-openais...

tomcam• 2 years ago

Holy shit. Thank you for your service.

wkat42428• 2 years ago

Also, OpenAI is now one of the most closed AI companies. No open source. No open weights. They don't even share how they're models are designed or the number of parameters. There's just nothing left from their original mission.

OpenAI's $150B valuation hinges on upending corporate structure, sources

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