J.P. Morgan's OpenAI loan is strange

https://marketunpack.com/j-p-morgans-openai-loan-is-strange/

by vrnvu • 9 months ago

260 146 9 months ago

greenfish6• 9 months ago

The first example has a miscalculation; if you invest 1k and the EV is 900, then your choice has negative ROI, not positive.

quirino• 9 months ago

The calculation that arrives at 900 has already subtracted the 1000 from the start.

breischl• 9 months ago

He's calculating EV above cost. If you look at the calculation, the first term is -1000 to account for the initial investment. So the final value is tell you that you got back the initial money plus 900 more.

neom3• 9 months ago

However, the article is technically inconsistent in framing.

postflopclarity• 9 months ago

it's correct. the EV is 900 after accounting for the 90% probability of -$1000. that's what the first term in the sum is for.

riazrizvi• 9 months ago

This just reminds me of how flimsy cases are bolstered as soon as you put numbers and formulae in them.

daft_pink• 9 months ago

I’m pretty sure the banks view the intellectual property value as the security for their loan not the potential profits of the company.

I’ve worked for enough startups that even if your company folds and goes bankrupt with no business plan the ip generally can easily cover the outstanding loans.

nradov2• 9 months ago

That was one of the key parts of Silicon Valley Bank's business model. And that part worked pretty well: their collapse was caused by mismanaging interest rate risk and they never took many losses on loan defaults.

nine_zeros• 9 months ago

Parts of SVB got picked up by JPM.

SoftTalker• 9 months ago

I think that's got to be highly variable. I've worked for a couple of startups that went under and the IP had basically zero value. Who is going to pay for a failed implementation of a failed idea?

JamesBarney6• 9 months ago

I don't think OpenAI will be one of those companies. I can't imagine a world where OpenAI sells for less than 4b.

schmidtleonard• 9 months ago

Who buys the IP?

JamesBarney6• 9 months ago

Like he said Microsoft is the most likely person to want to acquire the IP and employees. Amazon could be a potential second. Google paid 2.4b to license Windsurfs technology, OpenAI would go for far more.

candiddevmike• 9 months ago

It must be nice to put IP up as collateral for a loan. I know myself and a few other founders have tried and basically been told to go pound sand.

KaiserPro• 9 months ago

I’m pretty sure the banks view the intellectual property value as the security for their loan not the potential profits

Naa that takes too long to get any value from. If openAI goes pop, their IP isn't going to be worth much, because it'll die from competition, or the economy going to shit.

CamperBob2• 9 months ago

Depends if they end up in a position to shake down the rest of the industry, as Google can with the Transformer patent(s).

neom3• 9 months ago

Interesting that they seem to misunderstand the difference between Equity Risk and Debt Risk, they also misapplied bond spreads.

Anyway, J.P. Morgan's OpenAI loan isn't strange, it's calculated exposure to Microsoft.

sberens• 9 months ago

This Reuters article claims OpenAI is going to generate $3.6 billion in revenue this year, but the costs will lead to a loss of more than $5 billion. It expects a major revenue jump next year to $11.6 billion

The article linked[0] is from last year.

A recent article[1] from this year says "OpenAI looks to meet its full-year revenue target of $13 billion and a cash-burn target of $8.5 billion, the report added."

[0]https://www.reuters.com/technology/artificial-intelligence/o...

[1] https://www.reuters.com/technology/openais-first-half-revenu...

Rudybega• 9 months ago

Yeah, this is a pretty major error. They already have a higher revenue than the article's quoted "jump next year" (which was this year and was an underestimate).

NewsaHackO8• 9 months ago

Don't worry, people in the thread are now going to pivot to "Uhh, those numbers don't matter! Here's an opinion from some tech blog about the financials of a private company!"

emp173443• 9 months ago

Aren’t they still deep in the red? What’s the justification for claiming they’ll become profitable?

JCM9• 9 months ago

Mixing the AI bubble with the financial system. What could possibly go wrong.

chrisoconnell• 9 months ago

I mean, let's be honest there. This is much different than the blockchain bubble, in which 2/3 of the population is actually utilizing or interacting with AI daily.

While, yes, it's overhyped and takes up too much of the spotlight, it isn't going anywhere and is going to continue to be a staple in our lives moving forward, and will continue to increase in impact as it improves.

Blockchain will always be blockchain, and it was absolutely a bubble. Will it improve? Sure. Will it ever be as impactful to the everyday individual as AI? Maybe, but most people will not know or care. It will mostly be a passive experience.

AI will/has fundamentally changed how we work in the matter of 3 years. So, financial system jumping on board this, is much safer than jumping onboard crypto hype trains.

(I'm not saying crypto is bad / is a bad investment, but lots of crypto and ai startups are both trash, well, most startups are trash, I say that as a founder who has had many trash ideas)

ipaddr• 9 months ago

"AI will/has fundamentally changed how we work in the matter of 3 years"

The past 3 years or the next 3 years or 1.5 years both ways?

It hasn't really done that yet. The work from home zoom meetings has made a bigger impact. Maybe in a few years? Its on par with the metaverse at this point.

hansmayer4• 9 months ago

I mean, let's be honest there. This is much different than the blockchain bubble, in which 2/3 of the population is actually utilizing or interacting with AI daily.

You do remember that by the time the blockchain bubble burst, literally everyone and their mother were "interacting" with it?

AI will/has fundamentally changed how we work in the matter of 3 years

For people in bullshit jobs creating workslops, yes its probably an absolute blessing. Enjoy it while it lasts.

akshayshah• 9 months ago

I'm no expert in corporate finance, but whether or not OpenAI goes bankrupt feels like the wrong question to me (in thinking about this loan). Wouldn't a bank be more concerned with (1) the likelihood that OpenAI can raise another round of financing from which to repay the bank, and (2) the likelihood that OpenAI will have assets worth >10B when/if they do eventually declare bankruptcy?

The bank's risk seems quite a bit lower than the VC's risk.

Closi2• 9 months ago

Also 5% would be a ridiculously low rate for this sort of corporate finance. You would expect more like 8-12% I think?

Plus the post seems to only include 1 year of interest.

Unless we know the terms, I don't think we can necessarily calculate EV from JP Morgan's perspective. I would say that they aren't usually carelessly giving away money though... They probably have terms where they can get out early if OpenAI's position weakens etc.

nradov2• 9 months ago

JPMorgan Chase might not mind ending up owning much of OpenAI's IP if they default on the loan. Banks have largely been locked out of making equity investments in OpenAI so far so perhaps they see this as the next best alternative?

photonthug• 9 months ago

feels like the wrong question to me

I agree but had different questions. TFA mentions the consideration of whether failure cases are correlated, but of course if OpenAI wins big, there's a good chance this directly or indirectly creates much instability and uncertainty in many other loans/partners. What's the EV on whether that is net-positive considering this is a loan at 5% and not an investment?

On the other side, if OpenAI crashes hard, is it really such a sure thing that Microsoft will be the on the hook to pay off their debts? Setting aside whatever the lawyers could argue about in a post-mortem, are they even obligated to keep their current stake / can they not just divest / sell / otherwise cut their losses if the writing is on the wall?

beambot• 9 months ago

Secured debt doesn't go to zero in the 90% failure mode...

adventured• 9 months ago

All that text to somehow not realize that large companies routinely take on banking relationships, including debt, specifically to start cultivating the various relationships/trust they'll want access to in the future. Apple and Microsoft both did this at massive scale even though they didn't have to, in order to prime the debt markets in regards to relationships/trust.

ferguess_k• 9 months ago

At this point I would rather consider this kind of large loans to be "political" than "technical", that is say, they may or may not make sense in terms of $$$, but may make a lot of sense in other areas.

groby_b• 9 months ago

My very first thought was that somebody needs to take the lead for the IPO circus...

(Also, a revolving credit facility is not a loan, which this discussion misses)

einrealist• 9 months ago

They don't need an IPO. "Private equity funds" are already being offered to retail investors. Less oversight and a way to pass the risk to gullible retail investors.

ericmay• 9 months ago

The scenario and assumptions used in this are not just wrong, but they are simple and wrong.

seanhunter• 9 months ago

What a weird analysis.

A company that has revenues and is extremely well-capitalized gets debt finance. That is not news. That is totally commonplace. "Shouldn't all their capital come from investors?" No. Companies at all stages typically use a mixture of debt and equity finance.

His EV calculation is completely flawed also. Debt finance is typically senior to equity in recovery at bankruptcy, so when JPMC do this analysis (and believe me they did this analysis) they are not assuming 0% recovery. They are thinking it is most likely in a bankruptcy that they get some x>0% recovery.

Finally, banks don't think about their relationship with a multi-billion-dollar company in terms of the ROI on a single revolving credit. (even though this will in all likelihood be very profitable for JPMC). They think about how giving this revolving credit makes it more likely they get advisory on any future bond issuance and I-banking work when OpenAI want to do takeovers, and a foot in the door at IPO time etc.

addicted2• 9 months ago

Are there other examples of well capitalized technology startups that have significant revenues that have also opted for significant debt financing?

frankchn• 9 months ago

Amazon issued $1.25 billion in convertible debt in 1999: https://www.wired.com/1999/01/an-amazonian-debt/

Closi2• 9 months ago

Amazon?

https://www.seattletimes.com/business/amazon-pays-off-its-hi...

neom3• 9 months ago

We had way more debt than venture financing in the pre-ipo days of DigitalOcean. Thanks Michael Dell!

reaperducer2• 9 months ago

Are there other examples of well capitalized technology startups

I think we're well beyond the point where OpenAI can be called a "startup."

shmatt2• 9 months ago

This is literally the reason behind the collapse of Silicon Valley Bank. Debt keeps your cap table untouched, its very tempting at certain stages

empath752• 9 months ago

I'm going to paraphrase Matt Levine here -- the central trick of bankers is to divide debt into tranches of claims of different seniority, with different rates of return. Debt is a way to borrow money from investors where they actually have a generally low rate of return specified and have a senior claim on being paid back in the case of insolvency. Stocks are a way to borrow money for investors where they get basically _nothing_ in the case of insolvency, but they expect a higher return from either dividends or stock buy backs, or just from company growth. Different investors have different goals in terms of risk/reward for what they want out of a company they invest in, and providing investors more options unlocks more opportunities to raise money.

JumpCrisscross4• 9 months ago

well capitalized technology startups that have significant revenues that have also opted for significant debt financing?

Debt is almost always cheaper than equity. Particularly if you can collateralise.

Well-capitalized companies rejecting debt is more of a Silicon Valley outlier in the global economy. (It likely stems from dot-com trauma.)

nl4• 9 months ago

It's so common that mismanagement of risks associated with it led to the fall of Silicon Valley Bank.

This Forbes article has a good overview: https://www.forbes.com/sites/amyfeldman/2023/03/19/silicon-v...

mamonster2• 9 months ago

The other part is that it's a revolver, not a bond.You only pay what you use. It's not uncommon in VC. If you need to buy stuff now but your next round is in 2 months the revolver saves your ass. And once you raise you pay it back.

appleiigs• 9 months ago

Yeah, I thought it was weird right away too, but brush it off as a tech blog... but then I realized it's actually a finance website. Ruins the credibility of the website instantly.

The $4B revolver will likely sit undrawn. When it gets drawn, there usually a specific plan to reduce it back to zero. It's not for building data centres, a revolver typically used just for timing differences like a credit card is used (and the lenders will be paying attention). Also, when things get bad, there are covenant triggers which would allow lenders to renegotiate.

agentcoops• 9 months ago

Agreed. Crucially, it doesn’t ask _why_ they want this line of credit and assumes it’s to serve as an equal source of financing as capital investment. Yet, I think the reason for this credit line is rather straight-forward risk management: it is not at all inconceivable that any one of the numerous legal proceedings the firm is already entangled in (to say nothing of ones surely to come) conclude in settlements that would be existential without it. If I were an OpenAI investor, I would certainly want a story for how they would handle such an expected emergency. A few other high-growth startups are publicly known to have obtained such a line of credit at a similar stage.

nl4• 9 months ago

It's a badly researched article too.

OpenAI is going to generate $3.6 billion in revenue this year, but the costs will lead to a loss of more than $5 billion.

We know that actually:

OpenAI generated around $4.3 billion in revenue in the first half of 2025... OpenAI said it burned $2.5 billion
OpenAI looks to meet its full-year revenue target of $13 billion and a cash-burn target of $8.5 billion, the report added.

https://www.reuters.com/technology/openais-first-half-revenu...

jay_kyburz• 9 months ago

Who is paying them all that money do you think?

timcobb• 9 months ago

This looks like a case of the author doing their own research

terminalshort3• 9 months ago

Generous of you to call that drivel "analysis." Doesn't even bother to find out what the collateral for this loan is.

chadash• 9 months ago

The math is wrong:

Cost: $1,000 Case 1 (90%): OpenAI goes bankrupt. Return: $0 Case 2 (9%): OpenAI becomes a big successful company and goes 10x. Return: $1,000 + 5% interest = $1,050 Case 3 (1%): OpenAI becomes the big new thing and goes 100x. Return: $1,000 + 5% interest = $1,050

The actual math is that if OpenAI succeeds, then there's a nod and a wink that JPM will land the lead role in the IPO or any mergers/acquisitions, which translates into huge fees.

addicted2• 9 months ago

This is correct.

This isn't a financial transaction. This is a "relationship" transaction.

JamesBarney6• 9 months ago

Not to mention the risks that OpenAI even if it does goes bankrupt sells for less than 4b is not anywhere close to 90%.

empath752• 9 months ago

Also, if OpenAI goes bankrupt, you _much_ prefer to have loaned them money to having bought shares in the company. People who own shares in a bankruptcy only recover anything after all the people that loaned them money are paid back in full.

shmatt2• 9 months ago

a company with 800 million weekly active users, and only losing $10B-$15B before implementing ads - which IMO is coming fast and soon to the LLM world - i would never calculate a 90% chance their shares end up at $0 before an exit option

This is the easiest money and best relationship JPM could imagine

kibwen• 9 months ago

a company with 800 million weekly active users

Wow, that's slightly more than Yahoo has. Well, had.

unethical_ban• 9 months ago

TLDR - MS won't let OpenAI go bankrupt/get seized by JPM so they're loaning with the concept that MS is backing it.

cs702• 9 months ago

The loan is likely secured by OpenAI's assets, including hardware, facilities, and IP.

OtherShrezzing• 9 months ago

The lead bank in OpenAI’s IPO will take something like 4-5% of the biggest IPO in history.

In the 1% scenario, JPM could be looking at tens of billions on the upside, if this loan secures them the lead.

LudwigNagasena• 9 months ago

Case 1 (90%): OpenAI goes bankrupt. Return: $0

The loan value in case OpenAI goes bankrupt depends on the details of the deal.

fred_is_fred2• 9 months ago

It's almost certainly not $0 for JP Morgan. It might be $750 or $400 or whatever but it's not $0.

johnwheeler• 9 months ago

It's silly to assume that they have a 90% chance of failure just because startups have a 90% failure rate or whatever.

millipede• 9 months ago

Ctrl-F "convertible"
0 of 0 matches

Some analysis.

JamesBarney6• 9 months ago

However, there's no speculation about what their earnings will be because they're currently selling their services below cost and there isn't really any story as to how they'll turn this profitable.

Do we know they're selling their services below cost? I'm pretty confident they're making money on inference and burning through large piles of cash on capex and research.

fred_is_fred2• 9 months ago

"We're the primary lender for the AI boom" has some $$$ value as well.

deanputney• 9 months ago

I've determined that it's a bad idea for me to write an article like this because every time I've seen one of these they're absolutely riddled with errors and incomplete information. I have no doubt I'd do worse!

NewsaHackO8• 9 months ago

OpenAI is not a profitable company.

People have to stop saying this with NO evidence to back it up. And by evidence I do not mean random investors opinions, anonymous "insider" infomation, etc. Give numbers. Saying the same thing 1000x doesn't make it true.

swarnie• 9 months ago

Surely the burden of proof lies on the more unbelievable side?

Show me how a company setting never before seen piles of money on fire is profitable. Until someone can i'll happily keep claiming they're unprofitable.

NewsaHackO8• 9 months ago

The burden of evidence is on the side of the person making the claim.

hansmayer4• 9 months ago

What do you mean "no evidence"? The Information had just published a concrete analysis showing the OpenAI is spending the threefold of what they collect in revenues. And many other bloggers, Ed Zitron being one of the better known ones, have been writing about it forever.

NewsaHackO8• 9 months ago

Nope, proven wrong upthread :)

A recent article[1] from this year says "OpenAI looks to meet its full-year revenue target of $13 billion and a cash-burn target of $8.5 billion, the report added."

[1] https://www.reuters.com/technology/openais-first-half-revenu...

Legend24403• 9 months ago

There’s a lot of motivated reasoning going on around here. People want AI to fail so it doesn’t threaten their $300k developer salary.

hansmayer4• 9 months ago

No nothing to do with that. Read up on the report by The Information about how much OpenAI spent in the first half-year vs. how much they collected in revenues, maybe that will clear things up ?

emp173443• 9 months ago

This kind of comment isn’t helpful. Of course, people around here also want AI to succeed for various reasons. Everyone has an agenda. Judge based on the merit of the argument.

adrr• 9 months ago

Big banks will give sweetheart loans to startups and officers of startup for the opportunity to take a company public. They’ll make billions on the IPO.

ohdeardear2• 9 months ago

It's not just strange, but completely regarded, _assuming_ no more information, but since it's JPM, of course they know more, which probably make it a lot less regarded.

I would not be happy with this trade if I had any $JPM.

lordnacho2• 9 months ago

1) If OpenAI goes bankrupt, JPMC will get more than 0 on their loan. For some reason I have yet to comprehend, when I was sitting on a credit desk pricing CDS, they always used 40% as the recovery rate. I ran into a credit guy who taught finance at two very famous universities, and he also immediately said 40%, with no explanation.

2) It's a revolver, it's not all being used

3) If things go great and OpenAI ends up buying smaller guys or getting bought out (probably MSFT?) then JPMC will be right in there with those young bankers who don't sleep. They will pull in many many millions in fees with very little expense.

4) If things don't go great, OpenAI will be looking for more financing. Guess who will help them?

5) It's really only in case there's an Enron things are terrible for JPMC. Like if it turns out the whole thing was a bunch of guys in India answering every ChatGPT query, something like that. If there's actually an AI business, and despite JPMC's history of due diligence misses (Javice case) that's probably the case, then there's deals to be done.

ivape• 9 months ago

4) If things don't go great, OpenAI will be looking for more financing. Guess who will help them?

Who? I can only think of the Saudis/UAE and SoftBank.

lordnacho2• 9 months ago

If Softbank buys OpenAI, they don't just sign a contract and send a cheque. They need powerpoint slides from JPMC to make the deal happen, and that costs money.

nl4• 9 months ago

more financing

As we've seen from the NVidia/Oracle and AMD deals, there is more than one way to structure investments. Financing doesn't just mean "deposit cash into my bank account:.

dsr_2• 9 months ago

The 40% historical recovery rate comes from a long line of companies that actually built things and produced products, often in factories with equipment in them... and a warehouse full of product that didn't sell at full price.

If OpenAI folds, there are two basic scenarios:

- one: the LLM crash has come, and OpenAI barely has any material assets. Microsoft isn't putting more money into it, and they won't take it over -- people with seven figure salaries will be looking for six-figure jobs.

- two: somehow, only OpenAI crashes, and the rest of the LLM boom continues. This likely involves OpenAI being extraordinarily outcompeted, so it's a long slow decline as contracts run out and are not renewed. 40% is probably high, but if JPM can retract the revolving debt before it all goes out the door, not ridiculously high.

JumpCrisscross4• 9 months ago

the LLM crash has come, and OpenAI barely has any material assets

They have claims on the use of assets via their leases.

More directly, if AI crashes in the next 2 years, they get bailed out. Between OBBA, tariffs and immigration enforcement, the American economy less AI is probably already in a recession. Trump and the GOP would get desperate if the political leash the AI boom has granted them is shortened. Borrowing another few trillion dollars to fix it would be worth the gamble.

dboreham• 9 months ago

immediately said 40%, with no explanation

This means the number is wrong.

dragonwriter• 9 months ago

If OpenAI goes bankrupt, JPMC will get more than 0 on their loan.

Depends what other creditors OpenAI has, and the priority on their claims.

For some reason I have yet to comprehend, when I was sitting on a credit desk pricing CDS, they always used 40% as the recovery rate.

That doesn't mean its the actual amount they will recover, just that it is sonething like the expected average for a large class given the criteria JPMC uses when entering such a position and the anticipated range and distribution of outcomes when those firms fail.

eek2121• 9 months ago

This, and thanks to certain loopholes in the U.S., it is possible that JPMC may receive nothing at all. Depending on the jurisdiction, companies have been known to sell off all assets for near zero and eventually leave creditors and investors on the hook.

rester324• 9 months ago

3) If things go great and OpenAI ends up buying smaller guys or getting bought out (probably MSFT?) then JPMC will be right in there with those young bankers who don't sleep. They will pull in many many millions in fees with very little expense.

Which is exactly the same argument that the author made, no?

alon_honig• 9 months ago

The problem with recovery rates is that they different by orders of magnitude across different borrowers and credit products (for example car loans are around 70%, industrials are a bit loweer at 40%-50%, and high yield credit cards are single digits) so if you have a random sample of credit products in a portfolio it will approximate 40%. What generally happens is that the bank will sell it off to a specialist distressed investor long before the bankruptcy event so 40% is both wrong and not a horrible number to go by.

tgma• 9 months ago

It was a waste of time to read. TLDR is if OpenAI were a random startup it’d be strange but because it has credible shareholders that stand to lose in a bankruptcy (weirdly constructed argument), it’s probably safe enough.

Duh. Basically the author wrote a word salad to say the bank calculated the probability of them losing money would be lower than what the author pulled out of their ass at the beginning of the article, refuting their own hypothetical point.

vincefutr23• 9 months ago

- a company with 800m weekly actives is not going bankrupt

- existing models are profitable if cutoff future training and focused on inference

- debt is senior to equity

- if my life depended on one company not going bankrupt over the next decade I’d pick OAI over Citibank

- banks use revolving credit as a break even or loss leader for higher fee business

- high fixed cost businesses use debt and equity to scale

- lead investors would very rarely pay down the debt of an investment, that’s not the backstop

- unlikely for revolving credit, but a convertible structure could mitigate any perceived asymmetric downside

ghawr• 9 months ago

This is not a serious person.

Taken from the About page:

Who are you? Hi, I'm the author. I've been dabbling in investing since 2015 and I decided to get more serious about it in 2023.

Is this financial advice? No. In fact, everything you read here is be half-baked by design. If it were fully-baked, then I wouldn't have felt the need to write about it in order to distill my thoughts.

markdown• 9 months ago

Ad hom

wellwelloctober• 9 months ago

I used to work in IB and I'm not that surprised: * Revolving credit facilities tend to have the highest priority of corporate debt when it comes to going after assets in the event of default * RCFs are often about relationship management rather than making money as others have pointed out * Credit agreements (that set out the terms of RCFs) often include a lot of triggers/rules about how much can be drawn and at what rate to protect lenders. e.g. If revenues are below Y you can only borrow Z

Havoc• 9 months ago

Banks are pretty chill about these things. I've been controller on something with a billion+ revolving facility myself.

You can basically throw the entire analysis out on a single point:

Case 1 (90%): OpenAI goes bankrupt. Return: $0

It won't be $0. Creditors have liquidation priority and banks make very sure they're confident in the quality of the collateral before handing out billion dollar facilities.

mmooss2• 9 months ago

Or the banks own the most valuable, exclusive, world-changing IP in decades. Nobody else really has a shot at that IP besides a few other extremely-capitalized AI companies.

I'd loan them the money for that opportunity. It's possible that the IP will somehow turn out to be worthless; I don't know what will happen, but I am confident ruling out worthless. Could the lender could refuse Microsoft's payment - from a minority shareholder? OpenAI could accept Microsoft's money and pay the bank; with that offer, OpenAI would have leverage to play Microsoft and the lender against each other.

OpenAI could go bankrupt for many reasons having nothing to do with the value of their IP. For example, they could overinvest in developing it - a positive outcome for the lender.

skopje• 9 months ago

FTFY >>> Or the banks own the most valuable, exclusive, world-changing "AMERICAN" IP in decades.

You do realize other countries are working on this too, right? The biggest one rhymes with INA.

mmooss2• 9 months ago

There are other American companies too, but the list of AI projects anywhere that operate on the highest level, and have the capitalization for the massive data centers (apparently) required to reach the next level, is small and very exclusive.

RayVR• 9 months ago

This author obviously has no experience with investment banks.

OpenAI is massive, fairly risky, associated with Microsoft, etc. all true. What matters to JPM is potential future business. There’s potentially an enormous IPO in the future. The credit line is just good business. They are fostering the relationship.

lumost2• 9 months ago

The doomerism on OpenAI finances is unfounded IMO. They will survive and be a large company at this point. The big question marks are on just how big, when, and the cost to get there. If they lost all financing tomorrow, they'd deploy a cheaper model and slow down research. I don't have a hard time imagining that they could pull off a 75% reduction in costs in such a scenario.

No one is OpenAI’s financing while anthropic et al. keep raising. The big risk is that future innovation fails to live up to the hype and they can't afford full priced GPUs or the proposed datacenters.

wyre2• 9 months ago

unfounded, are you sure?

They've made 8 billion this year with 800 million users, or $10 ARPU (average revenue per user). They have committed to spend a trillion dollars over the next 5 years. I'll call it $200 billion/year, with a (rounded-up) billion active users, they would need to make $200 ARPU . For comparison Meta has about $50 ARPU. I'm having a harder time finding Google's ARPU, but with $350 billion in revenue last year if they made $200 ARPU they would have less than 2 billion users (I can't find how many user's they actually have but I would bet money it's a lot more). They would have to be making 3-4x more money per user than two of the largest companies in the world for this bet to work out.

I don't see how this is going to work out for them.

lumost2• 9 months ago

I'd doubt that they intend to spend a full trillion. The spend commitment is such that no one else can plausibly outspend them. If you take the position that spend is correlated with outcome - then they are on a positive track to win. The existence of this spend commitment will motivate some market players to exit the market.

zeckalpha• 9 months ago

This looks a bit like JP Morgan trying to make an AI ZIRP without the Fed lowering rates.

FilosofumRex• 9 months ago

The loan amount is small & revolving to be too risky for a bank the size of JPM, but undue optimism about OpenAI also isn't justified.

Google, Amazon, Apple, MSFT, Meta & Nvidia didn't face "China risk", but AI firms do. As Tik Tok saga has proven, the days of running large losses for years, to recover it all back in IPO, and monopolize thereafter, may be over.

China might win the AI race and force the hand of USG for yet another national security imperative, to expropriate foreign assets.

xg15• 9 months ago

What happens if we instead put our lender hat on? [...] Case 1 (90%): OpenAI goes bankrupt. Return: $0

Even for a very simple model, this seems unrealistic. Isn't the whole point of a loan that your liable to pay it back if you're in any way able to? (very roughly)

So the bank would have claim to some of OpenAI's existing assets even if they went bankrupt. The probability that they not only go bankrupt but also have no assets left at all would be much lower.

jbs789• 9 months ago

I'd suspect the revolver has conditions that limit the circumstances under which it can be drawn. A public company is required to file the details of the facility but in this case... suspect OpenAI has gone for the headline but the details matter.

AbstractH24• 9 months ago

Hypothesis: It's worth investing in OpenAI even if you never see a dollar of it back. Simply because it adds credibility.

J.P. Morgan's OpenAI loan is strange

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