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Meanwhile, Google, valued at $3.5 trillion, generated more than $70 billion in free cash flow over the past four quarters alone. While ChatGPT looks poised to take a bite out of Google Search, Google’s financial performance has improved, in part because it also has a booming cloud business that rents out servers to large customers including OpenAI and Anthropic.

The financial disparity between OpenAI and established firms like Google has prompted public market investors to question whether the startup’s unprecedented revenue growth, including projected growth, will be enough to erase concerns about its future cash burn.

Google’s turnaround is a vindication for CEO Sundar Pichai and his decision to merge dueling AI labs within Google as well as to effectively pay $3 billion last year to bring back longtime AI researcher Noam Shazeer, who had left to launch a chatbot startup.

Training Challenges

Altman, in his note, acknowledged that “by all accounts, Google has been doing excellent work recently,” especially on pretraining, the first phase of developing a large language model that can generate text or images. In that phase, AI researchers expose an LLM to data from the web and other sources so it can learn connections between them.

Google’s success with pretraining in particular came as a surprise to many AI researchers, given that OpenAI at times has struggled to eke out gains from pretraining, an issue Google also wrestled with for a while. Those challenges previously prompted OpenAI to focus more on a newer type of AI model, known as reasoning, which uses more processing power to produce better answers.

And before OpenAI launched its GPT-5 model this summer, its employees found the tweaks they made to the model during pretraining worked when the model was smaller in size but stopped working as it grew, The Information previously reported. That suggests OpenAI will have to resolve these pretraining issues to catch up to Google in that field.

Altman last month assured staff that OpenAI would gain ground in the coming months, including with a new LLM, codenamed Shallotpeat. In developing that model, OpenAI aims to fix bugs it has encountered in the pretraining process, according to a person with knowledge of the model.

Altman said he wanted to focus on “very ambitious bets” technologically, even if it meant that OpenAI would get “temporarily behind in the current regime.” They include advancements in using AI to generate data that could train new AI and “posttraining” techniques such as reinforcement learning, which is essentially a way to rate a model’s answers positively or negatively so it can learn to improve them.

He has privately and publicly discussed the company’s bet on automating AI research itself as a way to speed up breakthroughs, including an AI’s ability to surpass humans in everything from energy and biotech research to healthcare.

“We need to stay focused through short-term competitive pressure,” Altman said in the memo. “We have built up enough strength as a company to weather great models shipping elsewhere. But having most of our research team stay focused on really getting to superintelligence is critically important.”

He added: “I don’t want this note to be a downer—we are doing remarkably well as a company…and I expect that to continue.”

He ended by saying that “it sucks that we have to do so many hard things at the same time—the best research lab, the best AI infrastructure company, and the best AI platform/product company—but such is our lot in life. And I wouldn’t trade positions with any other company :)”

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There’s little sign Europe’s leaders can restore the sector’s competitive edge

Europe may well be sleepwalking into deindustrialisation, as Ineos chair Sir Jim Ratcliffe has indicated. But it is hard to see it changing direction. The UK chemicals group Ratcliffe runs — whose debt has been sold off by concerned investors — will not be the last to come under pressure.

The problem, for European commodities chemicals companies such as Ineos Group, its affiliate Ineos Quattro, BASF, Synesqo, Arkema, Evonik and Lanxess, is that producing in the continent is relatively expensive. Natural gas, which accounts for 85 per cent of the cost of manufacturing fertilisers and ammonia, cost Europeans about four times what it did in the US in the third quarter of this year, according to Oxford Economics. Strict environmental standards and carbon costs add to the burden.

That is a formula for disappointment. European companies’ share of the global chemicals market declined from 28 per cent in 2003 to 13 per cent in 2023, according to Barclays research, a trend that has continued since. Sector stocks have underperformed the Euro Stoxx 600 index by more than 30 per cent over the past two years.

The problem is bigger for petrochemicals and commodities chemicals makers, among them Ratcliffe’s companies and others such as Venator and Kem One. Speciality chemicals companies such as Synthomer, Arkema, ASK Chemicals and Seqens have the advantage of relatively less competition, though they are vulnerable to innovation by rivals.

Protectionism might seem like a solution, at least to the companies themselves. Ineos Group said it was filing EU anti-dumping cases against imports of cheap substitutes. As Europe’s fourth-largest industrial sector, chemicals underpin industries including defence, agriculture and pharmaceuticals. But trade curbs risk raising costs for consumers and inviting retaliation. A third of EU chemical sales is exports.

Smaller, leveraged companies have been the first to bear the brunt. Apollo-owned Kem One’s €450mn bond due in 2028 has fallen to 14 cents on the euro. Loans to Seqens have changed hands at roughly half their face value. Chemicals groups account for 5.4 per cent of the European leveraged loan market and are down 2.8 per cent year to date through October on Morningstar’s European Leveraged Loan Index.

That might understate what could be a much graver problem. Barclays analysts argue that, at worst, chemicals groups could find they have a “terminal value” — the sum of their long-term cash flows starting from a few years out — of zero, and should slash their indebtedness sooner rather than later. That leaves a lot of toxic waste to wade through.