Image Credit: Paris Marx : A serpent devours its tail around OpenAI’s logo.
Hey Everyone,
I hope you had a good summer. OpenAI is set to make another huge funding round with a valuation of over $100 Billion. Let’s explore why this is important to the AI landscape and the world at large.
Since November 30th, 2022 OpenAI has grown into a generational company with now 200 million weekly users. No other Generative AI company even comes close. This means that OpenAI’s ChatGPT’s weekly users have essentially doubled in less than a year. OpenAI is a symbol of widespread adoption of Generative AI and the sort of commercial leverage this company now possesses is greater than some folk assume. The ChatGPT app is also extremely dominant.
OpenAI is building a ChatGPT subscription for AI services that is like the Amazon Prime of the industry, for AI applications. Think about all that it will soon be able to offer:
And so many others.
OpenAI Prepares for Huge Funding Round
Not only will Microsoft invest in the next mega round, but Apple, Nvidia and other big names as well, according to Bloomberg. You might not have realized but on Friday, Amazon acquired Covariant (licensing models and talent), one of the most important Generative AI robotics startups. Amazon will also use Anthropic’s models to upgrade its Alexa voice speakers. Meanwhile, Magic Labs and their huge round had a Cloud deal with Google, who is one of their main investors via CapitalG. So much consolidation is occurring just below the surface.
This suggests the accelerated pace of funding will lead to extreme consolidation among hyperscalers eating the best AI startups and in 2024 it’s already happening. OpenAI is building products and will allegedly change its corporate structure for the next big round to woo even more investors. Since Apple has a partnership with OpenAI for some aspects of Siri and Apple Intelligence, investing in OpenAI is a no-brainer for Apple and with super-charged revenues the same goes for Nvidia. We also know that the UAE and perhaps Saudis are also big believers in OpenAI.
What this will mean in reality is even fewer Generative AI startups will be able to keep up or compete with this generational behemoth basically created by Microsoft called OpenAI. Monopoly capitalism also gets the privilege of picking the winners. Ironically for Microsoft they have funded what will turn out to be a significant competitor. Who else might be tempted to participate in the massive funding round of OpenAI? Softbank, Salesforce, ARK Invest and so many others.
The Rise of a Generational Company
To have reached 200 million weekly users even with massive losses means that OpenAI can become part of the BigTech pantheon itself. The proposed round would be led by Thrive Capital, which is investing about $1 billion so the total could amount to several Billion. OpenAI being product driven don’t have to sit by their laurels with ChatGPT, they can strive to build the optimal AI ecosystem where AI-as-a-Service is a sprawling play with few having the ability to even compete with them at their scale.
I’m not sure many of you realize what kind of a world this will entail. OpenAI originally launched in 2015 as a nonprofit. In 2019, it established a for-profit arm to lead its artificial intelligence development efforts. Of course all of this will change with a new corporate structure, more in line with Sam Altman and Microsoft’s own preferences. Microsoft is already OpenAI’s biggest funder, having invested roughly $13 billion and Apple should seriously consider taking a significant stake in the startup if it wants Apple Intelligence to be at the bleeding edge of capabilities to stimulate iPhones sales.
OpenAI most recently valued at $86 billion when employees sold shares in late 2023. It’s not clear how much above $100 billion the new round would take them. As their ChatGPT and app traffic improves, OpenAI will inevitable turn on the Ads tap and essentially surge to profitability in the coming years meanwhile building a stack of Generative AI products within their massive ecosystem that has an audience of scale. A lot of analysts seem to miss this simple point.
OpenAI is considering removing the present cap on profits that can be earned by investors, and may have to do so to reach the next level. If OpenAI can win the text-to-action Agentic AI phase of Generative AI, there will be no stopping them. They have been working on Strawberry (Q*) and Orion models for a long time, there’s no reason to assume it’s not somewhat impressive. All of this not taking into account the full reach of GPT-5 or what they refer to as AGI.
OpenAI and the Death of Sovereign AI Dreams
OpenAI’s wild success may hurt smaller rivals and Sovereign AI globally where we have Generative AI startups like Cohere in Canada, Aleph Alpha in Germany or AI21 Labs in Israel that won’t likely be able to generate much revenue in comparison. If AI is just another tool of monopoly capitalism what happens to this technology and its application for the general public?
If OpenAI is modifying its current “capped for-profit” structure to make it more appealing to large-scale investors this means it’s only a matter of time before OpenAI adopts Advertising just like Perplexity has. The best business models are always those that combine things like Ads with subscriptions, and of course OpenAI knows this full well and if they ever need to become profitable sooner rather than later, they will do so. Advertising is such a lucrative revenue cash cow, even Uber makes over $1 Billion from Ads. With the massive audience OpenAI is attracting in terms of website views their path to profitability isn’t as daunting as it once seemed.
Closed Models vs. Open-Source Models
With Meta leaning into Open-weight models, and Google Gemini and Anthropic’s Claude models performing well, the pressure is on OpenAI to prove it’s not just a one-hit wonder with ChatGPT. ChatGPT has become basically synonymous with all of Generative AI. ChatGPT.com is a top 20 global website after just less than two years. That is why OpenAI is a generational company. But now that it has scale, what can it actually do with it?
ChatGPT’s website gets 1.6 billion visits per month.
There are about 200 million weekly active users,
In just 5 days, ChatGPT surpassed 1 million users.
Curiously, only around 12% of ChatGPT’s users are American.
OpenAI’s next funding round will be the barometre for Generative AI hype and whether or not its a bubble and what happens next to the entire ecosystem. Are Nvidia and OpenAI the only two big winners in all of this? With Google recently acquiring the licensing of Character.AI’s model and their top talent, it does not look good for the rest. In the era of mega-rounds, the leftovers don’t tend to do too well.
American BigTech vs. China
If there’s not a level playing field and free market competition, America’s innovation ecosystem around Generative AI might not be too healthy and will be too dependent on hyperscalers, which will open the door for the likes of China and their mighty AI ambitions. My belief is that China wins in both humanoids (General purpose humanoid robots) and AI applications by the 2030s. I don’t realistically think there’s anything America can do to stop it, and certainly not how hyperscalers are dominating there.
The Amazon Covariant deal means BigTech will also be the global leaders for robotics, until they aren’t. Who else could OpenAI themselves acquire in the next few years? How will Databricks continue to evolve in AI before they go IPO that I expect in 2025? OpenAI could themselves acquire Figure AI (robotics), Harvey AI (legal) and any number of other Generative AI related startups. But first, OpenAI will beat the competition with deeper pockets. Not better models – but deeper pockets, more products, more ChatGPT paid subscriptions. Later, better Ads. It turns out, you don’t need GPT-5 or AGI to do this.
Hyperscalers Eating Generative AI
Forget Software eating the world (13 years later), it’s clear that in 2024, BigTech is eating Generative AI. Microsoft and Inflection, Amazon and Adept, Google and Character.AI and the trend just keeps increasing and accelerating. With so little antitrust regulation in the United States, BigTech has made a mockery of free market capitalism and America is turning into a Protectionist state globally with technological, digital and U.S. dollar moats. This signals to me that I’m not the only person that knows China is catching up and is likely set to surpass the U.S. in technological and AI supremacy in the next 20 years.
The U.S. will try to use companies like OpenAI as a kind of firewall against Chinese innovation. It won’t work, and could be fairly dangerous. This will also extend to military capabilities and those concerns around cybersecurity, National Intelligence and objectives of the Pentagon. They will also become lucrative customers of OpenAI, just like Palantir evolved but what took Palantir twenty years, OpenAI will do in three years. The next funding round for OpenAI is really the moment in history where OpenAI starts an AI Arms race quite literally.
It immediately ends the era of Sovereign AI elsewhere as model builders outside of China cannot compete, and brutally consolidates American AI startups purging most if not all of the competition. OpenAI will raise so much funding that even Elon Musk and xAI won’t be able to realistically compete in the years ahead. Microsoft’s Copilot Era doesn’t stand a chance. Anthropic while innovating well and with better models, is too far behind in scale, numbers of users and number of useful products. It will have to lean even more on Amazon and Google funding just to stay relevant.
OpenAI is Too Big to Fail
Enterprise AI is a competitive market, OpenAI could also acquire market leaders in their industry like ElevenLabs or Runway ML. You can expect Sora to be impressive and OpenAI to get more into text-to-action and text-to-gaming models. OpenAI has so much leverage, and only Google realistically has the means to compete, and oh yes China as well. [I will soon be sharing a guest post about China’s top AI Startups].
How big will OpenAI’s round be though? How do you top $13 Billion from Microsoft? We know that Thrive Capital would lead the round and would invest $1 billion. The reality is there’s no threat to OpenAI, Google simply doesn’t have the product-execution. It has the talent but not the vision, and it doesn’t have the trust of consumers. Presumably Microsoft, Nvidia, and Apple would contribute massive amounts to OpenAI’s next round. It will mean the likes of Mistral (France), Cohere (Canada), AI21 Labs (Israel), Aleph Alpha (Germany), Databricks (Private Startup), Lightning AI and all the rest (outside of China) will struggle to compete and remain relevant.
OpenAI could even acquire Perplexity or Suno AI, and get away with it given the total real lack of anti competition rule of law in the United States. A United States in a protectionist stance wants to bulldoze the rest of the world and stand firm against the amount of innovation that will come out of China in the next 20 years. That sounds a lot like, OpenAI. Our thesis at AI Supremacy is that this is only a temporary and ineffective measure. All of these blacklists, trade bans and a united flight of foreign investment only gets you so far. China is more innovative than the United States today, yesterday or tomorrow believes.
Welcome to the Club Mr. Altman 💰
OpenAI did not rise by accident, but was a planned event. This is the only scenario where an AI startups can compete directly with BigTech, sponsored and partially owned by someone like Microsoft, that was at the time the world’s most valuable company. OpenAI still needs to give 75% of its revenue to Microsoft when it becomes profitable which might be as soon as 2027 or 2028.
OpenAI wasn’t born, it was created. Microsoft invested $1 billion investment in 2019, followed by an additional $10 billion (somehow totalling $13 Billion) and, as such, now holds a 49% ownership stake and rights to up to 75% of profits until the time it receives back its investment. Even as Microsoft’s Copilot products are laughable, Microsoft still have a lot to gain with Apple and Nvidia participating and frankly, likely Softbank or its AI Vision Fund (UAE and Saudi Arabia in some capacity).
While China’s central Government plans decades in advance to spur its technological and economic future, in the United States democracy makes long-term planning difficult, so it’s up to the elites and BigTech to try to plan a future strategy that makes sense and uniquely benefits American interests. OpenAI is a child of that planning. Capitalism (at least in America) no longer is about the best startups and most innovative products. That’s a total sham, and OpenAI’s funding round will prove it.
OpenAI didn’t rise in a meritocracy, it was a winner picked by BigTech. The AI Arms race its next funding round will lead to will augment the potential for global conflict, not be a deterrent to it. OpenAI’s story isn’t one of grit, or American immigrants or innovation, or genius, but one of Silicon Valley backroom deals, Microsoft’s envy of Google’s Search Ads business, and hype manipulation. Its next funding round won’t level the playing field, in fact, it may very well remove the playing field altogether.
Is that really in America’s best interests?
Who will be able to compete with OpenAI if they raise another $10 or $20 Billion?
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