OpenAI makes five-year business plan to meet $1tn spending pledges
New revenue lines, debt partnerships and further fundraising targeted to cover enormous costs
OpenAI is working on new revenue lines, debt partnerships and further fundraising as part of a five-year plan to make good on the more than $1tn in spending it has pledged to create world-leading artificial intelligence.
OpenAI is planning on deals to serve governments and businesses with more bespoke products, creating more income from new shopping tools, and new sales from its video creation service Sora and AI agents, said multiple people familiar with the start-up’s efforts.
These people said it is exploring “creative” plans to raise new debt that can help it build out its AI infrastructure, while considering becoming a supplier of computing resources via its data centre initiative Stargate.
It is also weighing ways to cash in on its intellectual property by developing new AI infrastructure, making forays into online advertising and plans to launch consumer hardware products, including a new AI-powered personal assistant device, with former Apple star designer Jony Ive.
These ambitious plans will need to become reality if OpenAI is to meet its liabilities, as the group has made funding commitments that dwarf its income. In the past month, chief executive Sam Altman has committed to take more than 26 gigawatts of capacity from Oracle, Nvidia, AMD and Broadcom, at a rough cost of well over $1tn over the next decade, according to FT calculations.
The ability to meet these costs is increasingly a concern for the wider economy. Some of the most valuable companies in the US are now reliant on OpenAI to fulfil major contracts and underpin demand, stoking fears of an AI-fuelled financial bubble.
One senior OpenAI executive said “[investors] expect you to have a five-year model”, but added “right now I’d say there’s lots of fuzz on the horizon, and as it gets closer and it’s going to start to take real shape”.
OpenAI books about $13bn in annual recurring revenue, 70 per cent of which comes from consumers using ChatGPT, which costs $20 for a standard subscription, according to people familiar with the company’s finances.
ChatGPT has more than 800mn regular users, but just 5 per cent of those are paying subscribers, a number OpenAI intends to double, the senior executive said. The company has also rolled out cheaper access to users in India, with plans to do the same in the Philippines, Brazil and elsewhere, they said.
It also takes a cut of sales from items purchased through ChatGPT’s new checkout feature and is exploring introducing advertising to its AI products.
Altman last week said he liked Instagram’s approach to personalised advertising: “Maybe there’s something to do there, but, we approach ads with great caution.”
Recent partnerships with AMD and Nvidia include plans to share “technical expertise” in order to improve AI hardware, including chip and data centre design. One executive at the company compared those plans to Jeff Bezos launching cloud computing platform AWS using technical expertise gleaned from running his ecommerce business Amazon.
OpenAI’s operating loss in the first half of the year was about $8bn, even as revenue more than doubled on the year before, said a person with knowledge of the matter.
The company’s partners such as Oracle have taken on the upfront spending on infrastructure, with OpenAI hoping it can grow to meet its obligations to those partners as operational expenditure in future. The approach has been to “leverage other people’s balance sheets” to give OpenAI “time to build the business”, said the senior executive.
Greg Brockman, the company’s president, last week said recent spending commitments would pay for themselves: “If we had 10 [times] more compute [computing power], I don’t know if we’d have 10 [times] more revenue, but I don’t think we would be that far.”
If OpenAI continues its stratospheric growth, executives are also confident they can keep raising money from investors. Alternatively, the start-up could prioritise breaking even, though Altman last week said becoming profitable was “not in my top-10 concerns”.
OpenAI is also anticipating computing costs will fall sharply as a result of competition among suppliers and technical advancements.
The company’s deals with AMD and Nvidia are staggered so OpenAI will pay as new capacity is developed. But 20GW of capacity would require power roughly equivalent to that provided by 20 nuclear reactors, and analysts have questioned whether it is realistic for that demand to be met by a single company.
Two-thirds of the cost of developing new computing power goes towards semiconductors. OpenAI is aiming to stimulate the nascent chip financing market by offering enormous demand, and by forging novel contracts, such as its Nvidia and AMD deals.
Those deals have been criticised for their circularity — the ChatGPT maker is expected to spend much of Nvidia’s investment on the chipmaker’s processors, for instance. But the transactions will help non-investment grade OpenAI raise the debt it requires to realise its infrastructure ambitions, said the senior executive at the start-up.
The signal to the market is “we’re good for the debt”, they added. “We’re working with everyone to come up with creative financing strategies.”
“I don’t view them as drunken sailors going to bars and laying down IOUs everywhere,” said a person who has advised the company on its dealmaking. “It might look and feel that way, but this is actually a strategy backed up by technology, products, business plans and visibility into what is happening.”