A senior fellow at the Council on Foreign Relations (CFR) has raised concerns about OpenAI’s financial sustainability, predicting the AI startup could deplete its capital reserves within the next year and a half, at which point it would be swallowed by another tech giant.
The New York Times reports that Sebastian Mallaby, a senior fellow at the CFR, has published an analysis suggesting that OpenAI faces significant financial challenges that could lead to the company running out of money in the near future. His assessment comes amid broader questions about how capital markets will support the development of artificial intelligence technologies.
According to Mallaby’s analysis, while Wall Street worries about an artificial intelligence bubble, the more pressing concern is whether capital markets can adequately finance the development of AI technology. He argues that companies like OpenAI may exhaust their funding before their technology generates substantial profits.
Since ChatGPT’s launch over three years ago, AI models have rapidly acquired new capabilities, consistently exceeding expectations. These systems have developed the ability to create realistic images and videos, solve increasingly complex logic and mathematical problems, and process enormous amounts of information. The next frontier involves AI agents that can perform tasks such as filling online shopping carts and managing digital bills on behalf of users.
The central question the CFR fellow poses is whether these companies can survive long enough to reach profitability. Until recently, investors assumed capital markets would bridge the gap between technological emergence and eventual profits, as they did for current tech giants that operated at losses for years before earning hundreds of billions in profit.
Mallaby argues this assumption is flawed because generative AI businesses are fundamentally different from previous software companies. They require substantially more capital investment. While companies like Google, Microsoft, and Meta can afford to collectively spend hundreds of billions on AI development thanks to profitable legacy businesses, independent developers like OpenAI face different constraints.
The financial trajectory was predictable as early as 2020, according to Mallaby. Silicon Valley insiders discussed scaling laws showing that while models would become more powerful, costs would increase exponentially. OpenAI’s leader Sam Altman emphasized the benefits while downplaying the costs, successfully raising increasing amounts of capital and becoming what Mallaby describes as the best pitchman in tech history.
In March of last year, Altman achieved a record-breaking fundraising success, securing $40 billion from investment funds. This exceeded any previous private funding round, surpassing Ant Group’s $14 billion raise in 2018. The amount also exceeded the largest initial public offering ever, Saudi Aramco’s nearly 30 billion dollar raise in 2019. Unlike those companies, which were profitable, OpenAI is experiencing significant cash burn. According to reporting by The Information, the company projected it would spend more than 8 billion dollars in 2025 and more than 40 billion dollars in 2028, though The Wall Street Journal reported the company anticipates reaching profitability by 2030.
Mallaby contends that even Altman cannot maintain this fundraising pace indefinitely, yet the company needs substantially more capital. OpenAI has committed to spending 1.4 trillion dollars on data centers and related infrastructure. Even accounting for potential reneging on promises and payment with overvalued shares, the company must still secure enormous amounts of capital that capital markets seem unlikely to provide.
The predicted outcome is acquisition by a cash-rich company such as Microsoft or Amazon. Such a scenario would result in losses for OpenAI’s investors, while chipmakers and data center builders with contracts would need to find new customers. Mallaby believes this could trigger negative sentiment toward the entire AI sector among investors.
Read more at the New York Times here.
Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship.
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