A bite from the Apple? OpenAI seeks $500B and Most Valuable Company award

OpenAI is reportedly pursuing a $500 billion valuation through a secondary share sale, which would make it the most valuable private company in the world, surpassing SpaceX and ByteDance. The astronomical figure reflects investor confidence that OpenAI can become the next Google or Apple, despite the company’s massive burn rate and the inherent risks in such unprecedented valuations.

The big picture: Two separate funding deals are driving OpenAI’s valuation surge—a SoftBank-led round at $300 billion expected to close by year-end, and employee share sales commanding the higher $500 billion price tag.
• Most cheaper shares have already been purchased, forcing investors to compete for the more expensive secondary market shares.
• For investors buying at $500 billion, “they’re expecting an IPO above a trillion in two to three years, otherwise the rate of return does not justify the investment,” says Glenn Okun, a business professor at NYU.

The investor math: One anonymous OpenAI investor laid out the bullish case based on hypothetical user monetization scenarios.
• If ChatGPT reaches 2 billion users paying $5 per month—”half the rate of things like Google or Facebook”—that would generate $120 billion in annual revenue.
• “That alone would support a trillion and a half dollar company, which is a pretty good return, just thinking about ChatGPT,” the investor says. “It doesn’t include all the rest of stuff they’re working on, all the enterprise stuff, all the agentic stuff, all of the work they’re doing on hardware.”

Current performance metrics: OpenAI has shown impressive growth momentum in 2024, though profitability remains elusive.
• The company doubled its projected annual revenue to $12 billion in the first seven months of 2024, suggesting roughly $1 billion in monthly revenue.
• ChatGPT now has 700 million weekly active users, but fewer than 10 percent currently pay for the service.
• Enterprise adoption has surged to 5 million paying business users this month.

The cost challenge: OpenAI’s expenses are scaling alongside its revenue growth, raising questions about long-term profitability.
• The company expects to burn through $8 billion in cash this year alone.
• CEO Sam Altman said at a recent San Francisco dinner that OpenAI expects to spend “trillions of dollars on datacenters in the not very distant future.”
• Much of the infrastructure costs stem from inference—the computational power needed to serve AI responses to users.

Market dynamics: The valuation reflects both genuine business potential and intense investor competition for AI exposure.
• According to PitchBook data, a third of all venture dollars in Q2 2024 went to just five AI companies, more than double the 2023 spending.
• “Private-market pricing reflects what a small number of investors are willing to pay for a small number of shares,” Okun notes, suggesting the $500 billion figure may not reflect true market value.

What they’re saying: Industry observers offer mixed perspectives on whether the valuation is justified.
• “We’re in one of the biggest technology shifts [in history],” the anonymous OpenAI investor tells WIRED. “The outcomes continue to get bigger than people think.”
• Altman acknowledged the bubble dynamics at a recent dinner: “When bubbles happen, smart people get overexcited about a kernel of truth. If you look at most of the bubbles in history [like] the tech bubble, there was a real thing.”
• Arun Sundararajan, a professor at New York University’s Stern School of Business, frames the key question: “To what extent will OpenAI be able to retain the customers that it has acquired, and simultaneously be able to bring its costs to a point where it can, in fact, monetize at [hypothetically] $5 per user per month?”