OpenAI now worth US$500 billion, possibly making it the world’s most valuable startup

The OpenAI logo appears on a mobile phone in front of a computer screen with random binary data, March 9, 2023, in Boston. (AP Photo/Michael Dwyer, File)

OpenAI could now be the world’s most valuable startup, ahead of Elon Musk’s SpaceX and TikTok’s parent company ByteDance, after a secondary stock sale designed to retain employees at the ChatGPT maker.

Current and former OpenAI employees sold $6.6 billion in shares to a group of investors, pushing the privately held artificial intelligence company’s valuation to $500 billion, according to a source with knowledge of the deal who was not authorized to discuss it publicly.

The investors buying the shares included Thrive Capital, Dragoneer Investment Group and T. Rowe Price, along with Japanese tech giant SoftBank and the United Arab Emirates’ MGX, the source said Thursday.

The valuation reflects high expectations for the future of AI technology and continues OpenAI’s remarkable trajectory from its start as a nonprofit research lab in 2015.

But with the San Francisco-based company not yet turning a profit, it could also amplify concerns about an AI bubble if the generative AI products made by OpenAI and its competitors don’t meet the expectations of investors pouring billions of dollars into research and development.

OpenAI CEO Sam Altman has sought to dismiss those concerns, most recently last week, when he toured a massive data center complex being built to run the company’s AI systems in Abilene, Texas.

“Between the ten years we’ve already been operating and the many decades ahead of us, there will be booms and busts,” Altman said after being asked about a bubble. “People will overinvest and lose money, and underinvest and lose a lot of revenue.”

He added that “we’ll make some dumb capital allocations” and there will be short-term ups and downs but that “over the arc that we have to plan over, we are confident that this technology will drive a new wave of unprecedented economic growth,” along with scientific breakthroughs, improvements to quality of life and “new ways to express creativity.”

Just this week, the company launched two different business ventures, one a partnership with Etsy and Shopify for online shopping through ChatGPT and another a social media app, Sora, for generating and sharing AI videos.

OpenAI has been struggling to offer investors and staff the same perks and compensation as the publicly traded tech giants with which it competes. Facebook parent Meta Platforms, in particular, has been on a hiring spree for elite AI engineers and in June made a $14.3 billion investment in AI company Scale that recruited its CEO Alexandr Wang.

OpenAI’s for-profit subsidiary, valued at $500 billion, is technically controlled by the board of OpenAI’s nonprofit and both are still bound to pursue the nonprofit’s charitable purpose.

OpenAI’s partnerships with major companies and its plans to change its corporate structure have drawn the scrutiny of regulators, including the attorneys general of California and Delaware, who oversee charitable organizations that operate or are incorporated in their states.

The company has made big deals in recent weeks with Oracle and SoftBank, its partners on a data center venture called Stargate, and with chipmaker Nvidia, which makes the specialized AI chips those data centers need. At the same time, it has lessened its reliance on longtime backer Microsoft.

In September, OpenAI announced it had reached a tentative agreement with Microsoft about the future stake of its nonprofit in its for-profit corporation but released few details.

It also opened applications for nonprofits to apply for $50 million in funding from OpenAI, an effort it launched in response to the recommendations of an advisory board. The grants will go toward projects that increase public understanding of AI, support the design of AI for uses that communities want and increase economic opportunity. The deadline to apply closes on Oct. 8.

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AP Philanthropy Writer Thalia Beaty contributed to this report.

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The Associated Press and OpenAI have a licensing and technology agreement that allows OpenAI access to part of AP’s text archives.

Matt O’brien, The Associated Press