Sam Altman’s OpenAI recently completed a roughly $7 billion employee share sale at an $852 billion valuation.
This wasn’t an outside investment. OpenAI itself bought the shares from current and former employees, providing them with liquidity. This wasn’t about raising $7 billion to spend on more chips, data centers, training, or day-to-day operations.
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This comes as the ChatGPT creator prepares to go public. The company submitted a confidential registration statement for an initial public offering (IPO) in June and is now reportedly deciding whether to delay a potential $1 trillion listing until 2027 or go public sooner at a lower price, perhaps closer to that latest $852 billion valuation.
What a $1 trillion valuation would mean
A $1 trillion price tag would be about 17.4% above the employee tender valuation. That increase alone is not outrageous for a company growing as quickly as OpenAI. But the valuation itself should still raise some eyebrows.
The Information recently reported that OpenAI generated $5.7 billion of revenue in the first quarter. Multiply that by 4, and you get annualized sales of $22.8 billion, which would value the company at roughly 44 times sales.
Even if it debuts at an $852 billion valuation, it would still work out to roughly 37 times sales. That is an incredible multiple before you consider two important details: OpenAI is not profitable, and its business is extremely expensive.
OpenAI’s net loss widened
I want to be clear here. The company is growing sales on a scale and at a pace we’ve basically never seen before. That is undeniable.
But in my view, the eye-watering growth masks the pretty dubious economics of the business.
The problem is not that the company is losing money — that’s not unusual for a company in its early days trying to stake its claim on a market. The problem is that, unlike with the businesses that do this successfully, its costs seem to be scaling right alongside its sales.
The latest reported figures show that OpenAI’s net loss widened from $9.3 billion in the first quarter to $12.3 billion in Q2. That outstripped its sales growth over the same period.
Of course, bulls will tell you that this math will shift in the future. If they’re right, OpenAI could be sitting on a gold mine. But I’m not so sure. I’ve not seen much evidence that it will, and, in my view, the belief that it will shift fundamentally is based on some seriously rosy assumptions.
