The Six Five team discusses Is OpenAI Worth 150 Billion?
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Transcript:
Patrick Moorhead: So according to Bloomberg, OpenAI fundraising is out there to get the startup’s valuation to $150 billion. Talking about raising six and a half billion dollars in equity financing and maybe a cool $5 billion with debt. Daniel, valuation comes down to a couple of things. And I think first and foremost on a company like this, it comes up with differential advantage over time. There was no doubt that when OpenAI came out with ChatGPT, it was the differential advantage on top of everybody. It wasn’t even close. And then Google came out with Bard, stumbled their toe came out with Gemini, stumbled their toe, and apparently 90% of even tech unicorns are using OpenAI. And then, what happened? Is you had Meta come along and with Llama and essentially enabled almost as good of results for free, a complete disruptor. You have Microsoft that created its own models with fee or Fi, I never know if I’m using the right word there. And then you’ve got companies like AWS who are embracing open source but also have their own models like Titan.
And IBM is in the same category there. Today, OpenAI dropped a new piece of technology, not GPT-5, but GPT-4.0.1 that apparently in particularly two, three or four different use cases looks superior. Clearly, they brought this thing out to help buttress their debt and equity financing. But I got to tell you, Dan, I don’t see this as a runaway like Nvidia. Meaning, it’s going to be hard for people to catch up. Llama is close. And that’s probably the next best thing, particularly for enterprise. Gemini is getting better. The ecosystem is embracing free Llama for Meta out there and the enterprise. And if you don’t have, I would say a guaranteed and perceptual two to three year lead over everybody all the time, I just, I’m struggling to find the moat. The other part is although there are rumors about OpenAI making ASIC or an XPU with multiple vendors, 75 to 85% of their cogs are going to Nvidia. And they’re burning cash precipitously. So I’m not seeing it in the cards. I don’t understand this valuation. It looks like the rest of the open source industry is surrounding it and doing good enough.
Daniel Newman: I don’t know if I’m cynical Pat for saying this, but as I watch this number grow, I just think Ponzi scheme.
Patrick Moorhead: Interesting.
Daniel Newman: Listen, what I’m saying is, you have companies that have just poured massive capital into this thing at high valuations. How do they ever get out of it? You’re losing 5 billion a year. You’ve built a technology that is somewhat, like you said, it may be market leading, but the subs number and the revenue number, you’re running billions a year in cash. You don’t have by any means a moat that truly allows you like language models like Claude, Groq, Llama, Coher, there’s different models out there that all perplexity that most of us would argue, Google Gemini, that’re all pretty good and somewhat interchangeable to use. So what is the IP that this company holds that turns this thing into anything more than the way we run our federal government right now? You just keep stacking up valuation so that people can exit and new people come in at higher valuations and then they turn money by bringing in. So what’s the next round going to be, Pat? Another 5 billion in a year at 300 billion about, more than. Right now it’s worth two Intels.
Patrick Moorhead: Right?
Daniel Newman: It’s worth two Intels. And I’m not saying Intel’s in great shape right now, but you actually look at the number here, Pat, and you’re, I just can’t figure it out. And so what is it that they have that’s proprietary, that’s unique? I mean clearly they’ve done some incredible work. The data’s not really theirs. The data’s everyone else’s, everyone else’s training on this. They do have a ton of capital that’s invested in order to have this model. But what is Saudi in it for when they went 50%? When they bought 49, is it 20 billion? There’s 20 million valve. They put 10, 20. So you’re telling me Microsoft is 8Xed it’s value since it put the money in? And by the way, Microsoft is so emphatically in belief in this company that they believe they’re a competitor now. That’s how much they believe in the technology that they’re going to build their own to compete with it. The company’s got all kinds of weird toxicity inside of the business with leadership, with people leaving with turnover.
And I mean, look, you and I often do have the inside scoop. I can truly sit here and be honest when I say I’m going to be genuine. I don’t have under the hood here. I’ve not been inside. I do not know what IP they have. I don’t know how close they are to AGI. I know Strawberry hit today or something announced today, Pat, wasn’t there an announcement? I’ve been so heads down I haven’t had a lot of time to look at it. But Pat, I don’t know. I mean I just don’t know where this comes from, how we get to this valuation. But what I know is this is if they get another double in the next valuation, they’re bigger than AMD and Qualcomm. They get another double in the next valuation, they’re worth more than Broadcom. And then one more after that Pat, and they’re more than TSMC. I mean, when do you actually have to build something and actually have a robust cash generating company? Because public companies are held to an incredible scrutiny. We will talk about Adobe a little bit later. They beat considerably this quarter. They missed on guidance and their company lost 8% of value. This company’s burning $5 billion or more of cash per year with no plan to be cash flow positive anytime soon. And they get their valuation 8Xed in 18 months, so.
Patrick Moorhead: Yeah, it’s interesting. Amazon went years without making any money. And some companies, when investors view that there’s this differential advantage they just dial in, man.
Daniel Newman: Yeah, absolutely. So I don’t know, Pat, like I said, I love seeing the AI thing, the story evolve. I know the company needs money, they want to build their own accelerators. By the way, that’s more cash. What’s the development on one of those? Like 600 million on average? Five, 600 million or more just in development costs. They have some licensing ideas, they have a subscription model, but they have a lot of competition. And Pat, I don’t know, I use Groq, I use Llama-based tools and I use Perplexity every day and ChatGPT. But I’m telling you, it’s not so good that it’s the only one I could use if I didn’t have access to it tomorrow, I think I’d be fine.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
