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OpenAI completes deal that values company at $157B

nytimes.com

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Re: OpenAI completes deal that values company at $157B

#231

Post by notahacker »

azinman2 wrote: post #171
tptacek wrote: post #158

Earlier quoted context omitted.

You don't need science fiction to find the bull case for OpenAI. You just have to think it stands to be the "next" Google, which feels increasingly plausible. Google's current market capitalization is in the trillions.

In 2023 Google had $307.39B in revenue and $24B in profit last quarter (suggesting ~100B in profit this year). Meanwhile OpenAI is losing money and making no where near these sums.

In fairness, whilst Google did reach profitability early (given the VCs had got their fingers burned on internet companies in 1999, they didn't have much choice) its revenues were lower than OpenAIs at IPO stage. The IPO was both well below Google's original hopes and considered frothy by others in the Valley because at the time the impressive and widely-used tech, limited as a business argument seemed to totally apply to the company that did search really well and had just settled the litigation for cloning Yahoo's Overture advertising idea. And their moat didn't look any better than OpenAIs

And much as AI hype irritates me, the idea that the most popular LLM platform becomes a ubiquitous consumer technology heavily monetised by context-sensitive ads or a B2B service integrated into everything doesn't seem nearly as fanciful as some of the other "next Googles". At the very least they seem to have enough demand for their API and SaaS services to be able stop losing money as soon as VCs stop queuing up to give them more.

Re: OpenAI completes deal that values company at $157B

#232

Post by paxys »

tptacek wrote: post #158
nwiswell wrote: post #106

Earlier quoted context omitted.

> if they don't make the numbers make sense soon then I don't see things ending well for OpenAI. This is pretty much obvious just from the valuations. The wild bull case where they invent a revolutionary superintelligence would clearly value them in the trillions, so the fact that they're presently valued an order of magnitude less implies that it is viewed as an unlikely scenario (and reasonably so, in my opinion).

You don't need science fiction to find the bull case for OpenAI. You just have to think it stands to be the "next" Google, which feels increasingly plausible. Google's current market capitalization is in the trillions.

Google is a digital advertising company. OpenAI hasn't even entered the ads business. In the absolute best case they can take over a large chunk of Google's search market share, sure, but that still doesn't make it anything similar to Google in terms of finances. How do they start making the queries profitable? What do they do when their competitors (Claude, Gemini, Llama, Mistral, Grok and several others) undercut them on price?

Re: OpenAI completes deal that values company at $157B

#233

Post by Narhem »

paxys wrote: post #100

$6.6B raise. The company loses $5B per year. So all this money literally gives them just an extra ~year and change of runway. I know the AI hype is sky high at the moment (hence the crazy valuation), but if they don't make the numbers make sense soon then I don't see things ending well for OpenAI. Another interesting part: > Under the terms of the new investment round, OpenAI has two years to transform into a for-pro…

The AI hype train is like gasoline for somebody’s car. It’s something people pay for to protect themselves against risk.

Re: OpenAI completes deal that values company at $157B

#234

Post by JumpCrisscross »

paxys wrote: post #100

$6.6B raise. The company loses $5B per year. So all this money literally gives them just an extra ~year and change of runway. I know the AI hype is sky high at the moment (hence the crazy valuation), but if they don't make the numbers make sense soon then I don't see things ending well for OpenAI. Another interesting part: > Under the terms of the new investment round, OpenAI has two years to transform into a for-pro…

> OpenAI has two years to transform into a for-profit business or its funding will convert into debt

Last I saw, the whole thing was convertible debt with a $150bn cap. I’m not sure if they swapped structures or this is some brilliant PR branding the cap as the heading valuation.

Re: OpenAI completes deal that values company at $157B

#235

Post by happyopossum »

CSMastermind wrote: post #201
paxys wrote: post #99

Earlier quoted context omitted.

Apple is an extremely conservative minded company. Making a huge gamble on an overhyped overvalued company for a chance at a 10x return isn't in their DNA.

But why wait until the 11th hour to pull out? They were on the round up until today.

> They were on the round up until today.

Not at all - their dropping out leaked last week, who knows how long ago they actually backed away from the table...

https://www.wsj.com/tech/apple-no-longer-in-talks-to-join-op...

Re: OpenAI completes deal that values company at $157B

#236

Post by nicce »

paxys wrote: post #214
babelfish wrote: post #199

Earlier quoted context omitted.

Why not? For Google Search specifically, there is no lock-in (obviously yhe productivity suite has more)

There's no lock in but there's also no alternative. Bing is vastly inferior. ChatGPT meanwhile can be directly challenged by Claude, Gemini and several others.

I guess you mean free alternative. Kagi at least provides very competitive results.

Re: OpenAI completes deal that values company at $157B

#237

Post by neomoto »

paxys wrote: post #209
hintymad wrote: post #154

Earlier quoted context omitted.

Most of the loss comes from hefty cost of inference, right? OAI runs on Azure, so everything is expensive at their scale: the data, the compute, and GPU instances, and storage, and etc. I'd venture to guess that they will start building their own data centers with their own inference infra to cut the cost by potentially 75% -- i.e., the gross markup of a public cloud service. Given their cost structure, building thei…

As part of Microsoft's last investment in 2023 OpenAI agreed to exclusively use Azure for all their computing needs. I'm not sure what the time limit on that agreement is, but at least for now OpenAI cannot build their own datacenters even if they wanted to.

Microsoft restricted their computing needs provider, but they could have allowed them to build their own datacenters.

Re: OpenAI completes deal that values company at $157B

#238

Post by Retric »

lxgr wrote: post #183
Retric wrote: post #125

Earlier quoted context omitted.

Training costs scale to infinite users making them a perfect moat even if they need to keep updating it. Success would be 10-100x current users at which point training costs at the current scale just don’t matter. Really their biggest risk is total compute costs falling too quickly or poor management.

The potential user base seems quite finite to me, even under most optimistic assumptions.

Not everyone is going to pay 20$/month, but an optimistic trajectory is they largely replace search engines while acting as a back end for a huge number of companies.

I don’t think it’s very likely, but think of it like an auction. In a room with 100 people 99 of them should think the winner overpaid. In general most people should feel a given startup was overvalued and only looking back will some of these deals look like a good investment.

Re: OpenAI completes deal that values company at $157B

#239

Post by paxys »

zeusk wrote: post #151
s1artibartfast wrote: post #129

Earlier quoted context omitted.

I seems like not ending well is the vast majority of outcomes. They dont have a profitable product or business today. It seems that me most likely outcome is that they have one replaceable product against many and few options to get return commensurate with valuation. My guess is that investors are are making a calculated bet. 90% chance the company become irrelevant, 10% chance it has a major breakthrough and someho…

> That said, I have no clue what confidential information they are showing to investors. For all we know, they are being shown super human intelligence behind closed doors. If that were the case, I wonder why Apple passed on this investment.

If that was the case then the valuation would have a couple extra 0s at the end of it. Right now this "super human intelligence" is still figuring out how to count the number of Rs in strawberry, and failing.

Re: OpenAI completes deal that values company at $157B

#240

Post by tracerbulletx »

hintymad wrote: post #154
paxys wrote: post #100

$6.6B raise. The company loses $5B per year. So all this money literally gives them just an extra ~year and change of runway. I know the AI hype is sky high at the moment (hence the crazy valuation), but if they don't make the numbers make sense soon then I don't see things ending well for OpenAI. Another interesting part: > Under the terms of the new investment round, OpenAI has two years to transform into a for-pro…

Most of the loss comes from hefty cost of inference, right? OAI runs on Azure, so everything is expensive at their scale: the data, the compute, and GPU instances, and storage, and etc. I'd venture to guess that they will start building their own data centers with their own inference infra to cut the cost by potentially 75% -- i.e., the gross markup of a public cloud service. Given their cost structure, building thei…

If they only have enough for a year or two of runway at current costs how the heck would they have enough capital to build an AI data center?
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