OpenAI is reportedly preparing to go public, but is it worth $1 trillion?

OpenAI's Potential $1 Trillion IPO [00:00]

• OpenAI is reportedly planning an IPO as early as next year, with a potential valuation of $1 trillion.
• This valuation would position it as the world's most valuable private company.
• Reuters reported on the potential IPO plans.

An OpenAI spokesperson didn't return my request for comment on this one.

Valuation Justification and Market Context [00:30]

• A key question is whether OpenAI's valuation should align more with Nvidia and Apple, or if $1 trillion is appropriate given potential years without profitability and a lack of consumer hardware.
• Nvidia recently eclipsed a $5 trillion market cap, while Apple's market cap is over $4 trillion.

My question of the day is this. Should OpenAI be more valued along the lines of Nvidia and Apple? Or does one trillion look right because the company may not be profitable for years and has no consumer hardware yet?

Financial Needs and IPO Rationale [00:41]

• It's difficult to assign a high valuation to a company that is not yet profitable, though Amazon's history showed this can work out.
• OpenAI has significant capital needs, having already committed about $1.4 trillion in spending.
• The company has an annual revenue run rate of approximately $20 billion by the end of the current year.
• An IPO makes sense as a way to secure necessary capital.
• A valuation somewhere between a "core" (like Coreweave) and a higher figure might be more appropriate, considering Coreweave's valuation increased significantly post-IPO.
• The company needs to demonstrate profit margin improvement.

So they need to have a way to get some capital. It makes sense that they would do an IPO.

The AI IPO Spectacle and Capital Demands [01:28]

• An OpenAI IPO would undoubtedly be one of the most watched and highly anticipated IPOs due to its central role in the AI narrative.
• The company's large capital needs make pursuing an IPO a logical step.

I agree with Victoria that they have large capital needs. So, this makes sense that they would go this route, but certainly uh grab it would grab tons of attention.

Demonstrating Innovation and Growth [01:57]

• To justify a $1 trillion valuation, OpenAI will likely need to unveil new hardware, potentially related to "Joanie Ivy" (likely referring to a specific project or product), in the first half of next year before its roadshow.
• Demonstrating innovation and growth in various areas, including hardware and partnerships, will be crucial.
• Notable partnerships include Thermo Fisher and PayPal, alongside Microsoft's significant stake.

They're going to have to show that innovation and show that they are growing in different areas.

Microsoft's Investment and Strategic Play [02:54]

• An alternative, potentially safer bet for investors is to lean into Microsoft, which benefits directly from its investment in OpenAI.
• Microsoft saw a 41-cent positive headwind in its earnings attributed to its OpenAI investment.
• For those who believe in OpenAI's future valuations, investing in Microsoft, which is performing well in hardware and has a strong AI story via Azure, is a compelling option.
• Microsoft is considered a larger holding in a large-cap core strategy and a strong way to play the AI space.
• It's suggested that investors could consider investing in OpenAI directly after its IPO once its future and growth potential are clearer.

I think Microsoft is your better bet. Like I said, they have that 27% stake there.