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OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

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Re: OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

#71

Post by disgruntledphd2 »

simianwords wrote: post #67
disgruntledphd2 wrote: post #62

Earlier quoted context omitted.

> The losses are scaling with revenue because increase in (expected) revenue increases valuation which increases compensation. My original point around equity is that if you pay a substantial fraction of comp in this form, then leaving it out of expenses is pretty bizarre. Is it your contention that the equity grants are the cause of their increasing losses? I believe that this is probably not true at all, it's more…

It’s not my contention, it’s FT’s conclusion. Also it should be obvious that you shouldn’t extrapolate stock based compensation in a scale up. People make a one time bounty but that is not recurring obviously.

> Before OpenAI’s switch late last year to become a public benefit corporation, investors in the company received convertible interest rights rather than conventional equity. Under US accounting rules, those interests were treated as liabilities and periodically revalued as the company’s valuation increased.

As OpenAI’s worth rose, the increased value of those investor rights created a roughly $30bn charge, added the person. The charge is not expected to recur following the restructuring, they said.

Stripping out the charge and other non-cash expenses, such as stock-based compensation of staff and computing credits from Microsoft, OpenAI’s losses were $8bn, according to the person.

I presume that this is what you're talking about, right?

That doesn't actually disagree with what I noted above using the (more detailed) figures from Ed's article. I noted that their revenue scaled by about 3x, while many costs (cost of revenue, sales & marketing, r&d) scaled by either equal (r&d) or greater than their revenue scaled. That's the point I was (apparently badly) making, nothing to do with the stock based compensation causing their losses. In any case, the loss was actually driven by treatment of the non-profit shares.

> Also it should be obvious that you shouldn’t extrapolate stock based compensation in a scale up. People make a one time bounty but that is not recurring obviously.

Correct, in some sense this is a once-off, however, most tech companies continue granting stock over time, so it's definitely worth including in actual margins. (This is a more general point that's not exclusive to Open AI).

Re: OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

#72

Post by dgellow »

saberience wrote: post #31
simianwords wrote: post #20

What is the right way to deal with Ed Zitron articles because he’s historically extremely inaccurate and makes wild claims. People ignore all his horrendous takes from last year and still eat this years “analyses” like it’s Gods words. He has been predicting the doom for years and years now and it is strange to see HN still putting credence here. This is what he said around a week back “ One of my sources has come fo…

Yeah he has zero credentials and authority and an agenda to push. Not to mention most of his articles are financially and technically illiterate and full of mistakes and inaccuracies. No idea why his shit keeps getting submitted.

Genuine question, do you have examples of inaccuracies and mistakes? If you ignore his caustic tone and predictions what I’ve seen reported by Ed Zitron has been accurate.

Re: OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

#73

Post by jgalt212 »

dgellow wrote: post #72
saberience wrote: post #31

Earlier quoted context omitted.

Yeah he has zero credentials and authority and an agenda to push. Not to mention most of his articles are financially and technically illiterate and full of mistakes and inaccuracies. No idea why his shit keeps getting submitted.

Genuine question, do you have examples of inaccuracies and mistakes? If you ignore his caustic tone and predictions what I’ve seen reported by Ed Zitron has been accurate.

I concur. His tone greatly undermines the value of the facts he reports. Sometimes / oftentimes his analysis is off the mark, but I have not found him to be reporting falsehoods or inaccuracies.

Re: OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

#74

Post by JumpCrisscross »

Schiendelman wrote: post #32
JumpCrisscross wrote: post #5

Earlier quoted context omitted.

> Doesn't seem like a domesday scenario Ceteris paribus , those figures imply a $45bn loss this year, $90bn loss next year and $110bn loss in 2028 before breakeven in 2029. That's $250bn of losses to be financed from 2026 onwards. (They raised ~$120bn, $25bn up front and the rest based on milestones. So Another ~$125bn uncovered.) That only works if OpenAI stays a fundraising darling. So not a doomsday sceanario. But…

You're adding absolute dollars rather than using percentages - that usually isn't how that works.

> rather than using percentages

Not really.

Fractions (7/2), ratios (3.5x) and percentages (+250%) are fundamentally mathematically identical.

There are a lot of problems with this back-of-the-envelope estimate, but I’m not sure the one I understand you presenting is one of them.

Re: OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

#75

Post by mikgp »

muglug wrote: post #4

Revenue went from $3.7B to $13.07B — roughly 3.5x. Operating loss went from ~$8.8B to ~$20.9B — roughly 2.4x. Doesn't seem like a domesday scenario.

I think it depends on a lot of things, not the least of wish is, this could be the worst their financials get, or depending how competitive this whole thing is, it could be the best:

https://www.reuters.com/technology/openai-considers-drastic-...

Re: OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

#76

Post by thewebguyd »

JCW2001 wrote: post #50
nstart wrote: post #12

I'm a little confused here. Cost of revenue is lower than revenue. That's good. R&D is the main contributor to losses here and this seems normal in an industry like this. For OpenAI specifically, I think this is problematic. They were the first movers but despite the large R&D they've lost so much ground to Anthropic despite Anthropic seemingly gifting them with weird PR self owns. But if we were to extrapolate this…

"Cost of revenue" isn't the entire cost of running the company, (ie R&D, operations, sales, marketing, etc). It's just a cost they've associated with revenue IN ADDITION to the other costs I mentioned. HSBC say they need to turn a 13b revenue to 200b by 2030 AND also find another 204b, in order to become profitable.

> It's just a cost they've associated with revenue

Its a little less arbitrary than that. Cost of Revenue/Cost of Sales/Cost of Goods Sold are clear, if you're following GAAP. To label these expenses as cost of revenue, they must meet the matching principle in that the expenses must be directly tied to the generation of specific revenue. If you didn't make that "sale" then that specific cost would not exist.

Other operating expenses come later on the income statement.

Total Revenue - Cost of Revenue = Gross Profit first, then you subtract OpEx from there for EBIT.

For OpenAI, I'd assume cost of revenue is almost directly inference costs + customer support & app dev.

Re: OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

#77

Post by thewebguyd »

lelanthran wrote: post #29
muglug wrote: post #4

Revenue went from $3.7B to $13.07B — roughly 3.5x. Operating loss went from ~$8.8B to ~$20.9B — roughly 2.4x. Doesn't seem like a domesday scenario.

> Revenue went from $3.7B to $13.07B — roughly 3.5x. > Operating loss went from ~$8.8B to ~$20.9B — roughly 2.4x. > Doesn't seem like a domesday scenario. Those two lines are moving up and to the right, but are not parallel. It all depends on where those two lines meet (the break-even point): too far in the future and the company will be dead anyway. Almost all companies will eventually be profitable; the problem is…

Compounding revenue & operating loss at those same rates (3.5x and 2.4x respectfully) puts those two lines meeting at around 2031. That'd be about 9-10 years to profitability, that seems pretty normal. Amazon took 9 years, Uber took 14 years before its first profitable year.

Re: OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

#78

Post by thewebguyd »

minimaxir wrote: post #16

At the end of his previous article ( https://www.wheresyoured.at/ai-is-slowing-down/ ), Ed hyped this news as "a story that will possibly burst the AI bubble" and "imagine what the worst possible thing for me to get would be and you’re probably close." This news doesn't fit either criteria: OpenAI losing billions of dollars isn't shocking news and both AI boosters and AI skeptics have likely assumed that. If anything…

> I had assumed it would be evidence that inference/Codex is fundamentally unprofitable (as Ed often blogs about)

I'm not sure where they'd get that idea from? If inference was fundamentally unprofitable, I don't think we'd have seen the massive CapEx spend & VC cash flooding into AI, it'd be a negative gross margin trap if that were the case.

It looks unprofitable because of the massive CapEx spend right now to build data centers.

People that think inference is not profitable are mistaking the total compute cost as inference cost, when really it needs separated into training compute vs. inference compute.

The bigger question is, is when does training slow down, if at all? If we hit plateaus with LLMs, at that point inference becomes nearly pure profit once you own the compute (and a hardware refresh cycle every 3-5 years).

LLMs eventually hitting a dead end for more advanced capabilities is what would spell trouble for the labs. Any existing hyperscaler cloud can run inference all day long, as long as they have access to a model. They don't need OpenAI or Anthropic for that. The frontier labs entire valuations rely purely on them staying ahead of the commodity curve. The moment they can't do that, they're done.

Re: OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

#79

Post by 0cf8612b2e1e »

lelanthran wrote: post #38
matusp wrote: post #22

Earlier quoted context omitted.

The AI companies also have a lot of space to grow their income (more ads, price hikes, ...). It seems realistic for them to turn profitable. But the market expected much more from these companies.

> The AI companies also have a lot of space to grow their income (more ads, price hikes, ...). Ads, maybe, but not only are they already walking back recent price hikes, the paying customers were hitting the brakes even on the original price. Note that this data you see (their increased revenue) came from a period where they were onboarding customers who were competing to see who used the most tokens. IOW, this is th…

I like this read. Eventually, management did collectively realize that tokens spent leaderboards were a bad idea. That is going to massively reduce the waste that was needlessly being generated to hit work quotas.

Re: OpenAI Losses Increased Nearly 8X in 2025, with Spending Hitting $34B

#80

Post by deepdarkforest »

thewebguyd wrote: post #77
lelanthran wrote: post #29

Earlier quoted context omitted.

> Revenue went from $3.7B to $13.07B — roughly 3.5x. > Operating loss went from ~$8.8B to ~$20.9B — roughly 2.4x. > Doesn't seem like a domesday scenario. Those two lines are moving up and to the right, but are not parallel. It all depends on where those two lines meet (the break-even point): too far in the future and the company will be dead anyway. Almost all companies will eventually be profitable; the problem is…

Compounding revenue & operating loss at those same rates (3.5x and 2.4x respectfully) puts those two lines meeting at around 2031. That'd be about 9-10 years to profitability, that seems pretty normal. Amazon took 9 years, Uber took 14 years before its first profitable year.

both amazon and uber used that spending to deliver a network effect moat/almost monopoly.

But openai's chance of a moat on model quality is dropping as we go, not increasing

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