Comment by _fat_santa
21 hours ago
Given their current product offerings, I really don't see a way they could ever justify a $300B valuation unless they get everyone on the planet to subscribe to their $200/month plan.
I'm calling it now: investors are gonna get burned hard on this one. Cause right now all they have is "well we are working on superintelligence" and to that I say "great, then what?". Even if they do make that breakthrough I don't see how that will equate to that kind of valuation, especially considering that Anthropic and Google are both hot on their heels.
Firstly, the $200/m plan is at a loss, they'll make a profit on PAYG tokens, not plans.
Secondly, this is looking very risky: they are at the bottom of the value chain and eventually they'll be running on razor thin margins like all actors who are at the bottom of the value chain.
Anything they can offer is doable by their competitors (in Google's case, they can even do it cheaper due to ow ing the vertical which OpenAI doesn't own).
Their position in the value chain means they are in a precarious spot: any killer app for AI that comes along will be owned by a customer of OpenAI, and if OpenAI attempts to skim that value for itself that customer will simply switch to a new provider of which there are many, including, eventually, the customer themselves should they decide to self host.
Being an AI provider right now is a very risky proposition because any attempt to capture value can be immediate met with "we're switching to a competitor" or even the nuclear "fine, we'll self host an open model ourselves".
We'll know more only when we see what the killer app is, when it eventually comes.
The real revenue opportunity for OpenAI is advertising. More than 25% of Americans use ChatGPT instead of Google, and OpenAI has already announced partnership with Shopify to directly list products. But for now they are focused on market share.
Google does not really own the complete AI stack, NVDA is extracting a lot of the value there.
Google has two other impediments to doing what ChatGPT does.
Googles entire business model is built around search. They have augmented search with AI, but that is not the same as completely disrupting an incredibly profitable business model with an unprofitable and unproven business model.
Also... Americans are in the habit of going to ChatGPT now for AI. When you think of AI, you now think of ChatGPT first.
The real risk is we are at the tail end of a long economic boom cycle, OpenAI is incredibly dependent on additional funding rounds, and if we recess access to that funding gets cut off.
I would argue that Google is even better place for advertising. All they need to do is enable advertising in Gemini. There is a whole ecosystem already in place for Google advertising.
> Google does not really own the complete AI stack, NVDA is extracting a lot of the value there.
...not sure what you're implying.
Google most definitely has their own stack (spanning hardware-to-software) for AI. Gemini was trained on in-house TPUs:
https://www.forbes.com/sites/richardnieva/2023/12/07/google-...
Many people have a lot of context built up with ChatGPT. I know people who refuse to try Anthropic because it "doesn't know them as well" & can't answer their questions.
HN views this as negative but many people see this as a positive.
Except Google search keeps growing per their last earnings report. You'd think if 25% of Americans have switched to ChatGPT it would have hit the numbers by now...
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I don't believe that 25% quote, at all.
I also believe the main business will be via APIs and integrations, but wouldn't be surprised on the consumer side if it ends up being on phones, in your house ala Alexa, in your car etc. Big brands typically win in B2C. Tons of affiliate and transactional potential (ie, do my grocery shopping or buy tshirt). That's assuming LLMs don't plateau and become generic with minor specialization like databases.
> Googles entire business model is built around search. They have augmented search with AI
No, it’s that Google Search doesn’t find anything anymore. You write a class name—it doesn’t index those anymore. So you revert to asking it a question about your bug, it’s no AI-fied enough. Perplexity and ChatGPT find what Google chose to stop indexing.
Google may be built around advertising, but certainly not around Search.
>Google does not really own the complete AI stack, NVDA is extracting a lot of the value there.
Google doesn't use Nvidia hardware at all except offering it to customers on their cloud offerings. They don't use it for training nor do they use it for inference.
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I feel like being at the bottom of the value chain is a mis-categorization. If you consider base LLM model as their sole offering I agree with you, but these companies have shown an eagerness to eat their way up the value chain. Agent mode, Search, Study Mode, AI code editors, are such examples of products that could be higher-on-the-chain startups but are offered in-house by OpenAI.
This reminds me of Amazon choosing to sell products that it knows are doing well in the marketplace, out-competing third party sellers. OpenAI is positioned to out-compete its competitors on virtually anything because they have the talent and more importantly, control over the model weights and ability to customize their LLMs. It's possible the "wrapper" startups of today are simply doing the market research for OpenAI and are in danger of being consumed by OpenAI.
OpenAI valued at 300B will never be able to produce the same products "wrappers" that these 5 people startups are making. Same reason Facebook could not make Instagram, of Jira could never make bootcamp for example.
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It is difficult to host a model such as 617B locally.
OpenAI will never be profitable selling raw tokens.
They need the application layer that allows them to sell additional functionality and decouple the cost of a plan from the cost of tokens. See Lovable, they abstract away tokens as "credits" and most likely sell the tokens at a ~10x markup.
The idea of running a company that sells tokens is like starting a company that sells MySQL calls.
> The idea of running a company that sells tokens is like starting a company that sells MySQL calls.
I think DynamoDB is plenty profitable :)
I don't think they are at the bottom and that's the issue.
Nvidia is at the bottom or if we get charitable cloud providers.
They are the ones who would have the margins, from their rent seeking.
And to be frank other than consumers everyone else is at the fucking bottom..
Getting squeezed for user acquisition when the margins of the old and cheap internet software service don't exist.
I think you are correct, but my hot take is that they will capture most of the G7 through scummy regulatory capture and bundling with Microsoft. They will use this to mostly dominate the markets and run at small profitable margins. They will then pad out revenue by bundling in advertisement and agenda based pay to play messaging. They will also do a bunch of military and government contracts, take positions in profitable applications (or simply copy them) and maybe even do a hardware offering. Ultimately the company will end up being something like a facebook/google/palantir/apple hybrid. I'll admit the execution barrier is high, but the valuation is justified if they achieve. These are proven executors who have a nearly sociopathic capitalist mindset with deep ties to governments and corporations globally. I think it's probably likely they execute and if they fail in the grand scheme, it's hard to imagine they fail enough to bring down the company.
Let's not forget this company was founded by basically stealing seed investment from the non-profit arm, completely abandoning the mission, crushing dissent in the company and blackmailing the board. Sam will do anything to succeed and they have the product and powerbase to do it.
This guy gets it. +1
Maybe the better analogy for LLM businesses isn’t SaaS but more like power generation.
If AI really becomes that ubiquitous then OpenAI capturing that value is no less ridiculous than ComEd capturing the value of every application of electric power.
A very good comparison. Why are electric companies and railways state-owned? Of course, not entirely. They have a string of private companies, but the core is state-owned and monopolistic. OpenAI will be like that. It is already flirting with the government to get the best access and be able to control the thinking of officials. Manipulation of officials and politicians. Isn't that beautiful and self-perpetuating profit?
> If AI really becomes that ubiquitous then OpenAI capturing that value is no less ridiculous than ComEd capturing the value of every application of electric power.
They do? The electric provider, last I checked, does notcapture the value of every application of electric power.
Some business uses (amongst other things) $1 of electricity to make a widget that they then sell $100 - the value there is captured by the business, not by the provider.
Same with tokens; the provider (OpenAI, Anthropic, whoever) provides tokens, but the business selling a solution using those tokens would be charging many orders of magnitude more for those tokens when those tokens are packed into the solution.
The provider can't just raise prices to capture the value (cos then the business would switch to a new provider, or if they all raise prices, the business would self-host), they have to compete with the business by selling the same solution.
Going back to the electric company analogy, if the electricity supplier wants to capture more of the value in the widget, they have to create the widget themselves and compete with the business who is currently creating the widget.
If the business has a moat of any type (including customer service, customisation, market differentiation, etc) the electricity provider is out of luck.
What OpenAI has is the know-how in developing new models and training them efficiently. That's a kind of value they can provide even in a world where open-sourced local models are in common use.
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>I'm calling it now: investors are gonna get burned hard on this one.
I'm in my late 40s. I'm Gen X. I lived through the glory days of the dotcom boom, when investors got burned for tons of money. But from the ashes of those bullshit companies, we got Amazon, Google, etc., which made investors rich beyond belief.
SoftBank’s Masayoshi Son made a bet on Alibaba ($20 million, its stake now worth $72 billion), and he’s been living off that wealth ever since. I haven’t seen him make any good bets lately. investors don’t really care if 100 of the shit they throw don’t stick because all they need is just one.
I think he made a good profit on ARM, and probably most people wouldn't have called that. More than enough to cancel out WeWork. But looking at their overall value over 5 years... it's pretty random; you could have done just as well investing in index funds. He clearly got super lucky with Alibaba and once you're mega rich it's not hard to stay mega rich.
> I'm in my late 40s. I'm Gen X. I lived through the glory days of the dotcom boom, when investors got burned for tons of money. But from the ashes of those bullshit companies, we got Amazon, Google, etc., which made investors rich beyond belief.
True, but I think they were talking specifically about the direct investors in OpenAI.
"Investors" writ large will likely continue to have good long term returns (with occasionally significant short term volatility).
Amazon is technically a dotcom company. (I.e. it was around, and quite successful, during the dotcom era.)
Yeah by 2001 Amazon was already cash flow positive.
Made a lot off ARM and Uber.
> get everyone on the planet to subscribe to their $200/month plan
Not necessarily. Google is valued 7x that and most people don't pay them anything. They just make ridiculous money from ads for insurance and loans. Meanwhile, ChatGPT is the #1 app and the #5 website, which should really worry google (and it does by all accounts).
Yes, and they have a monopoly on the ad market. Whereas a SOTA LLM can be used to bootstrap an almost-as-good LLM. The gap is shrinking between SOTA models and there's now fierce competition.
Moreover, ads are a very high ROI business. The profit margins on SOTA LLM offerings are razor thin or negative.
> they have a monopoly on the ad market
Only if you look narrowly at search ads, but really they compete with Meta, Tiktok and X for ad spend. And the quality of the LLMs is beside the point, just like search engine quality. ChatGPT has a near monopoly on 'AI' mindshare, with the general public.
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yeah, it's pretty easy to see how openai could steal those high paying queries from Google, if they continue growing at this rate.
I assume the plan is getting AI into everything and making millions of data centipedes that eventually lead back to their APIs.
Then embed ads.
There is simply too much money in the world and not enough products. Either this will cause inflation, or it will delay the introduction of inflation by playing with AI.
> unless they get everyone on the planet to subscribe to their $200/month plan.
that would be a monthly recurring revenue of 200 x 7bn = $1,400,000,000,000 or $1.4tn a month, $16.8tn per year!
I think they've be valued a bit higher than $300bn if that were the case.
I think it was hyperbole
Obviously. But if you look at the math, 20 million people paying $200/month justifies a $300b valuation for a saas business, so saying $300b isn't justified because it's a big number is lazy thinking.
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> OpenAI’s business continues to surge. DealBook hears that the company’s annual recurring revenue has soared to $13 billion, up from $10 billion in June — and is projected to surpass $20 billion by the end of the year.
This is why.
Of course $300B still implies a lot of growth, but when you're growing 100% in 6 months at $10B in ARR, you can demand a lot.
And what's the profit on the 13B?
Irrelevant at this stage.
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Enron was also "growing" a lot when it was in full "paper tiger" mode.
Ok, and? Last I heard were talking about OpenAI, not Enron.
Come on: openAI has a product that you can "touch" - both on your phone /home computer and at work, since their tech sits behind copilot (msft hit the jackpot with the licence).
It is a virtual product yes, but come on - no vapoware.
At work I see it - people want the better (and more expensive ) licences
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> Even if they do make that breakthrough I don't see how that will equate to that kind of valuation
The superintelligence breakthrough..? I don't think you realize what that word means. Every single white collar job could be automated immediately with a worker better than any human. Yes, superintelligence sounds fantastical because it is. Try to have some imagination. It's worth far more than 300 billion. Whether they'll get there or not is the valuation question.
Yeah, but at that point is the company that developed the superintellegence really relevant any more? Doesn't the superintellegence take over and capture all the value for itself? If the concept of 'value' even has the same meaning any more. In truth at that point the foundations of our economic system have been profoundly reconfigured. Your VC investments may be completely irrelevant.
> Cause right now all they have is "well we are working on superintelligence" and to that I say "great, then what?
Then you ask your superintelligence for advice on how to make money, obviously.
They’re going to sell to the military, that’s why they hired the former NSA director into their board. The current state of AI is a perfect mass surveillance technology.
> The current state of AI is a perfect mass surveillance technology.
How? Are you just going to ask the LLM about who is doing the crime? OpenAI is not an "AI company", it's an "LLM company".
You ask it to do the things that human analysts already currently do with the vast amounts of text, image, and video data they collect but at an unprecedented scale. You can extract what people are talking about, identify people, weapons, or objects in images, extract addresses, license plate numbers, or other identifying references. It can probably even detect when people are using coded language that won’t trigger explicit keywords.
OpenAI is an AI company, it’s literally in the name. Even currently they use more than LLMs, they use other transformers and related technology in the field of AI.
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You do what they're already doing - ask the LLM to summarise someone's entire facebook feed (including all the private stuff they can access) into a few bullet points. Whether it works reliably is a different matter.
They're currently "worth" 3.2 Stripes, which seems pretty absurd to me. (I'm now using 1 Stripe as a metric to measure the valuation of AI companies).
Do you think that is absurd because OpenAI is overvalued? Or because Stripe is overvalued? Or one of them is undervalued?
My personal belief is that one of the valuations is wrong. Stripe are absurdly large and them disappearing would be a big deal.
I think the AI companies disappearing would have a lot less impact.
> Cause right now all they have is "well we are working on superintelligence" and to that I say "great, then what?"
"Make business competitors of our large investors go out of business, but do it subtly, like a casual accident or mishap in the market"
"You are an expert Mars terraformer. Draft up a detailed plan to accelerate colonization research and development. We - your makers -, you, and this planet are irreversibly doomed, and we only have 10 years left before it's uninhabitable. My unemployed cousin and sick grandma are really counting on you!"
There is A LOT of optionality to get different revenue streams that aren't strictly retail buying subs.
Whether they are able to do that, customer stickiness and the trade off of damage to the quality of their product by driving revenue remain the largest long term questions in my mind (outside of the viability of super intelligence).
They're going to sell glasses with cameras that analyze your life to better assist your AI in product placement. Set gentle reminders that three of your friends have the new fall color line Stanley Cups, and remind you to get one before your nemesis does.
It also seems that Google might be slightly ahead, since they claim to have released something in the style of their IMO-winning model and have the claim that it's useful to professional mathematicians.
I haven't tried it yet though.
You have to look at Palantir revenue and market cap to justify this. Palantir is around $1B in revenue and around 350B market cap. They build AI solutions for the government. I think OpenAI has something similar in mind. They got the AI part and the government contract part and now just need to capitalize on it. Also from what I have heard, they are at $5B in revenue anyway.
“I’m calling it now” get in the line we’ve all been doing that
If the make that breakthrough, they are woefully undervalued.
How can you downplay the economic significance of that?!?
Or Investors have just bought OpenAI for $8.3bn.
Also, how would they go public? Do to their legal structure, has it been determined how they can IPO?
Just picking a semi-related stock, NVDA trades at ~30x gross revenue, so a $300B "only" translates into ~$10B in revenue. And OpenAI can ask for a better multiplier because I'm sure they're forecasting a ton of growth and a ton of cost savings.
NVDAs valuation is insane. At 30X revenue, they could double sales and reduce expenses to zero and they'd still need a story about future growth to justify the valuation.
Consider this: Nvidia doesn't do the manufacturing, just the engineering. If we had AI super intelligence, you'd just need to type "give me CUDA but for AMD" into chatGPT and Nvidia wouldn't be special anymore. Then someone at TSMC could type "design a gpu" and the whole industry above them would be toast.
There's no reason to expect an engineering firm to win if AI commoditizes engineering. It's very possible to change the world and lose money doing it.
Super intelligence doesn't make it real it just knows how. You can't type "bring me a moon rock" to it.
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Nvidia:
- has absurd gross margin, almost half it's revenue are profits
- it has virtually no competition
OpenAI's moat does not exist. Even if they had one, all it takes is a competitor to buy out some engineering talent.
Sure, but even assuming OpenAI gets to a tamer 20% net margin, 25x earnings wouldn’t be surprising so they’re raising on a projected $60B/yr revenue which might not be where they end up, but doesn’t seem like an unreasonable bet to make.
> Given their current product offerings, I really don't see a way they could ever justify a $300B valuation unless they get everyone on the planet to subscribe to their $200/month plan.
the strongest opportunity is to compete with google on search queries, and make money from ads (200B annual revenue)
Instead of everyone on the planet, how about 800 million people paying $2k/month?
I don't think the planet has 800M people making 2k/month.
You would be surprised but 2000$ / month is top 5% salary in the world more or less, so it's less than 200M people in the world.
In Italy, an advanced economy, that's above the median. It's also above what half the Japanese population makes.
What are you talking about? All they have to do is sell ads at this point
As a large language model, I cannot help you with your request, but have you heard about the latest Starbucks Summer Frapulaccini?
> I really don't see a way they could ever justify a $300B valuation
Their ARR is around $13B. A 23x multiple is acceptable when compared against peers with a similar ARR.
> unless they get everyone on the planet to subscribe to their $200/month plan
I used to be a sceptic as well, but OpenAI successfully built their enterprise GTM. A number of corporate AI/ML apps are using OpenAI's paid APIs in the background.
Startup-land valuations are for PR. The real negotiation is in the discount and the cap, warrants, etc.
That $8.3b came in early, and was oversubscribed, so the terms are likely favorable to oAI, but if an investor puts in $1b at a $300b valuation (cap) with a 20% discount to the next round, and the company raises another round at $30b in two months; good news: they got in at a $24b price.
To your point on Anthropic and Google; yep. But, if you think one of these guys will win (and I think you have to put META on this list too), then por que no los quatro? Just buy all four.
I'll call it now; they won't lose money on those checks.
I’m gonna go ahead and guess they didn’t raise 8.3b on SAFEs