OpenAI is too expensive

Does Sam Altman ever sleep?

The OpenAI CEO has been inking deals left and right lately, and a barrage of new agreements has arrived in just the last 48 hours:

• Broadcom will deploy 10 gigawatts of custom AI accelerators with OpenAI over the next four years.
• Part of that deal includes working with SoftBank’s Arm Holdings to create a new AI chip
• Salesforce plans to incorporate its new AgentForce software into ChatGPT.
• Walmart will soon allow customers to make purchases via ChatGPT.

Those are just the latest team-ups: Don’t forget that OpenAI made headlines over the last month thanks to a $100 billion investment from Nvidia, followed shortly by an agreement with AMD that could see Sam Altman take a 10% stake in the chipmaker.

All of these deals must mean that the company is raking in money, right? Right??

Big expectations, small subscribers

Wrong, according to Deutsche Bank analysts Adrian Cox and Stefan Abrudan.

The pair noted today that OpenAI’s valuation of $500 billion makes it the world’s most valuable private company, nearly as high as Netflix’s market cap of $520 billion, and well above Spotify’s market cap of $144 billion.

But when you compare OpenAI’s ability to make money to those two publicly traded companies, questions begin to arise. Netflix has just over 300 million global subscribers, while Spotify has 276 million subscribers. OpenAI says it will have one billion weekly active users by the end of the year, but far fewer paying subscribers: Deutsche Bank thinks that number is only around 20 million.

And while Netflix’s price-to-sales ratio of approximately 12.5 seems healthy, and Spotify’s P/S ratio of 7.3 is sound, OpenAI’s expected P/S ratio of 38 looks frothy in comparison when you consider how small its pool of subscribers really is.

The analysts also warned that the gap between OpenAI’s ChatGPT and AI offerings from competitors like Google, Anthropic, xAI, and Perplexity is rapidly closing, threatening to eat into OpenAI’s user base. Sure, OpenAI will make more money in the future from its API, agents and new products, but right now its revenue-generating ability doesn’t seem to match its sky-high valuation.

Deep down, Sam Altman probably agrees: In a recent blog post, Altman wrote that its new Sora generative video software hasn’t been the smash hit he hoped it would be, writing that, “We are going to have to somehow make money for video generation. People are generating much more than we expected per user, and a lot of videos are being generated for very small audiences.”

In other words, the company is creating a lot of videos for a very small audience at a very high cost. That sentiment echoes Altman’s tweet from November 2022, only a few days after debuting ChatGPT: “We will have to monetise it somehow at some point. The compute costs are eye-watering.”

Show me the money

Setting aside the obvious comedic value of a CEO spending years publicly lamenting that his company needs to figure out how to make money from its product, it’s probably not a good sign for a stock market propped up by the AI trade.

“OpenAI is the cornerstone of the AI boom,” the Deutsche Bank team wrote. They continued: “It needs to show rapid revenue growth to prove that the technology is more than just hype and can pay for itself.”

But hey, maybe Altman’s declaration today that ChatGPT can now provide “erotica for age-verified adults” will solve the problem.—MR