ChatGPT maker OpenAI has earned a new mammoth valuation of over $100 billion in the latest funding round, according to the Wall Street Journal. The Sam Altman-founded artificial intelligence (AI) company is reportedly in talks to raise billions of dollars in new funding that could be led by one of its early-stage investors, Thrive Capital. The venture capital fund is expected to invest up to $1 billion, while tech giant Microsoft (MSFT) is also considering additional investment.
This round will mark OpenAI’s largest funding round since Microsoft invested $10 billion in early 2023. Also, the hefty valuation is by far the largest for any AI start-up firm.
OpenAI Wins Investors’ Confidence
ChatGPT’s first-mover advantage and huge popularity as one of the best generative AI chatbots has propelled OpenAI’s valuation. Moreover, additional backing by the same set of investors reflects solid confidence in OpenAI’s capabilities and enhanced market share gains.
Microsoft holds roughly 49% of OpenAI to date and the upcoming funding could raise its stake higher. Since 2019, MSFT has invested $13 billion in OpenAI. It is worth noting that investors do not directly invest in OpenAI as it is a non-profit company. They instead invest in OpenAI LLC, a for-profit unit, and are entitled to profits from that unit.
OpenAI’s Growing Financing Needs
Another report states that OpenAI’s CFO Sarah Friar sent a memo to employees yesterday mentioning the fresh capital raise. Friar noted that the capital will be deployed toward meeting higher computing power and other operating expenses. Friar added that the company is considering undertaking a tender offer later this year, which would allow employees to sell their shares.
In the last funding round held in February 2024, OpenAI was valued at $86 billion. The company allowed its employees to sell shares then. Notably, internal documents reviewed by the Wall Street Journal show that current stockholders are negotiating a share sale at a valuation of $103 billion. OpenAI is a private company, so its financials are not public. However, reports suggest that the start-up has an annualized revenue run rate of $3.4 billion. However, it stands to report a net loss of $5 billion in 2024 due to huge investments.
Competitive Landscape of Chatbots
OpenAI spent $100 million in developing its latest generative AI chatbot ChatGPT-4, and the company is developing an even advanced version. OpenAI will have to continue to invest heavily in research and products to remain on top of the generative AI curve.
Competition in the AI space is intense, with tech firms investing heavily in either their own models or in AI startups. Alphabet (GOOGL) (GOOG) has its own AI model, Gemini, while it has also invested in AI start-up Anthropic alongside Amazon (AMZN). At the same time, Meta Platforms (META) is developing its own large language model (LLM), Llama.
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