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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

#261

Post by thehappypm »

ToValueFunfetti wrote: post #200
KoolKat23 wrote: post #159

Earlier quoted context omitted.

For a P/E ratio of 20 they'd need to generate earnings (not revenue) of $7.85 billion, earnings are revenue less all costs.

Right, so 300m $/mo. * 12 mo. * x - costs = 7.85b or $3.6b * x = 7.85b + costs I hold costs constant at $8B and get x = 4.4. $8B is probably a slight overestimate of current costs, I just took the losses from the article and discounted the last year's revenue to $3B. Users use inference which costs money so, in reality, costs will scale up with revenue, which is why I note this is a false assumption. But I also don't…

They NEED to keep training forever. Otherwise free/cheap competitors catch up. Their only edge is being a half year ahead.

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

#262

Post by ac29 »

Retric wrote: post #125
lxgr wrote: post #98

Earlier quoted context omitted.

Revenue isn't profit. They're burning money at an impressive rate: https://www.nytimes.com/2024/09/27/technology/openai-chatgpt... I wouldn't even be surprised if they were losing money on paying ChatGPT users on inference compute alone, and that isn't even factoring in the development of new models. There was an interesting article here (can't find the link unfortunately) that was arguing that model training costs s…

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.

WSJ reported today that ChatGPT has 250M weekly users. 10x that would be nearly the the majority of internet users. 100x that would be significantly more than the population of Earth.

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

#263

Post by fnordpiglet »

paxys wrote: post #232
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.

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 t…

Google also offered a free product. OpenAI isn’t offering a free product but a subscription product plus metered API product amongst other. Their economics are structurally better than googles assuming they can keep growing their captured market share. Their outrageous costs are also opportunities to optimize costs, including massive amounts of R&D, etc. They don’t need to be profitable now - in fact as bezos demonstrated with Amazon for many years, profit is an indication you’ve run out of uses for capital to grow.

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

#264

Post by gizmo »

ToValueFunfetti wrote: post #200
KoolKat23 wrote: post #159

Earlier quoted context omitted.

For a P/E ratio of 20 they'd need to generate earnings (not revenue) of $7.85 billion, earnings are revenue less all costs.

Right, so 300m $/mo. * 12 mo. * x - costs = 7.85b or $3.6b * x = 7.85b + costs I hold costs constant at $8B and get x = 4.4. $8B is probably a slight overestimate of current costs, I just took the losses from the article and discounted the last year's revenue to $3B. Users use inference which costs money so, in reality, costs will scale up with revenue, which is why I note this is a false assumption. But I also don't…

If OpenAI starts making a lot of money on each subscription -- implied by your assumption that revenues will 4.4x while expenses stay constant -- the competition will aggressively undercut OpenAI in price. Everybody wants to take market share away from OpenAI, and that means OpenAI has to subsidize their users or sell at break even to prevent that from happening.

Furthermore, training also gets exponentially more expensive as models keep growing and this R&D is not optional. It's absolutely necessary to keep current OpenAI subscribers happy.

OpenAI will lose money, and lots of it, for years to come. They have no clear path to profitability. The money they just raised will last maybe 18 months, and then what? Are they going to raise another 20bn at a 500bn valuation in 2026? Is their strategy AGI or bust?

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

#265

Post by dartos »

lukev wrote: post #254
dartos wrote: post #164

Earlier quoted context omitted.

The hardware required is the same, just in different amounts. It’s less (gross) expensive for inference, since it takes less time, but the cost of that time (per second) is the same as training.

Obviously, that's my point. We can do the math. GPT-4o can emit about 70 tokens a second. API pricing is $10/million for output tokens and $2.5/million for input tokens. Assuming a workload where inputs tokens are 10:1 with output tokens, and that I can generate continuous load (constantly generating tokens). I'll end up paying $210/day in API fees, or $76,650 in a year. Let's assume the hardware required to service…

Inference alone totally can be. Just look at banana.dev, runpod, lambda labs, or replicate.

The issue is OpenAI is not just selling inference.

Though I wouldn’t be surprised if there were some hidden costs that are hard for us to account for due to the sheer amount of traffic they must be getting on an hourly basis.

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

#266

Post by riku_iki »

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.

> 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.

for this, in addition to "google" part, they also need to build "ads" part for monetization, which is also not trivial task.

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

#267

Post by riku_iki »

fhdsgbbcaA wrote: post #217
azinman2 wrote: post #171

Earlier quoted context omitted.

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.

Google has also magnificently shit the bed with Gemini; their ads business is getting raked over the coals in court; they are a twice convicted monopolist; and are driving away top talent in droves. It reminds me of the old joke: Heard about the guy who fell off a skyscraper? On his way down past each floor, he kept saying to reassure himself: So far so good... so far so good... so far so good.

> their ads business is getting raked over the coals in court

only display ads business, which is a fraction of total ads revenue

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

#268

Post by hall0ween »

staticman2 wrote: post #256
nicce wrote: post #236

Earlier quoted context omitted.

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

Kagi uses Google as one of it's search provider, so is hardly competing with Google.

In terms of quality search results, kagi is ahead of google. Unless I misunderstand the situation, inferior search result are a natural product of google getting paid by advertisers rather than kagi getting paid by their users. Google won’t be able to get away from using their index to serve up adverts (rather than quality results).

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

#269

Post by est31 »

philipkglass wrote: post #135
0cf8612b2e1e wrote: post #60

Earlier quoted context omitted.

In the Star Trek/Culture/Commonwealth equally distributed, benevolent AI, sure. In the I’ve-got-mine reality, I assume only the select few can speak with the AI and use it to control the serfs.

There's no future where OpenAI makes everyone else a "serf" though. In 1948 certain Americans imagined that the US could rule the Earth because it got the atomic bomb first, and they naively imagined that other countries would take a generation to catch up. In reality the USSR had its own atomic bomb by 1949. That's what the competition with OpenAI looks like to me. There are at least three other American companies w…

In many ways the USA does rule the earth now. The Grand Area is big.

With AI, I think there is extremely strong power laws that benefit the top performing models. The best model can attract the most users, which then attracts the most capital, most data, and best researchers to make an even better model.

So while there is no hard moat, one only needs to hold the pole position until the competition runs out of money.

Also, even if no single AI company will rule the earth, if AI turns out to be useful, the AI companies might get a chunk of the profits from the additional usefulness. If the usefulness is sufficiently large, the chunk doesn't have to be large percentually to be large in absolute terms.

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

#270

Post by staticman2 »

KoolKat23 wrote: post #176
Rebuff5007 wrote: post #53

I for one can never get over the fact that Mira Murati was not laughed out of the room when she said -- with a straight face -- that GPT4 had high school level intelligence and the non-existent GPT5 will have PHD-level intelligence [1]. IMO -- this is not a serious company with serious people building an important long-lived product. This is a group of snake oil salesmen that are in the middle of the greatest grift o…

I currently can ask gpt4 to do a high school intelligence level task for me (financial data capture) so the issue?

For one thing high school is a level of education not a "intelligence level".

For another thing there is not a single google search result for the phrase "high school intelligence level task". Unless Google is malfunctioning it seems you are just making things up?

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