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OpenAI Faces Potential $5 Billion Loss In 2024

AInvestThursday, Jul 25, 2024 7:29 am ET
2min read

Artificial intelligence star company OpenAI is undoubtedly one of the fastest-growing companies in history, but it is also gradually revealing a major problem it faces - its revenue cannot cover the high development and operational costs.

According to undisclosed internal financial data and information provided by relevant business personnel, some analysis points out that this ChatGPT manufacturer may lose $5 billion this year. If this analysis is correct, OpenAI will need more financing in the next 12 months.

Annual Loss Of $4-5 Billion

The development and operation of artificial intelligence models require high costs, and AI companies are currently unable to reduce these costs.

For example, OpenAI, according to media reports citing internal sources, is expected to spend nearly $4 billion on renting Microsoft's servers to support the underlying large language model of ChatGPT by this March.

In addition to this expenditure, this year's training costs, including data costs, may also soar to $3 billion. Last year, the company accelerated the training speed of new models, resulting in a final cost exceeding expectations. This year, with the training of OpenAI's flagship version of the large model, the related costs will double compared to last year.

In addition, employee salaries are also a high expenditure. OpenAI has about 1,500 employees, and to compete with the big guys in Silicon Valley for excellent talents, the total cost is $1.5 billion. Moreover, there are about 200 vacancies listed on the company's official website, which may mean that more recruitment will be carried out in the second half of the year.

Overall, OpenAI's operational costs this year may reach as high as $8.5 billion.

As for revenue, in addition to about $2 billion in annual revenue from the ChatGPT subscription service, OpenAI can also charge developers. Data shows that as of March this year, this business has not yet generated any revenue exceeding $80 million.

Plus other income of the company, it is estimated that OpenAI's annual revenue this year will be between $3.5 billion and $4.5 billion.

By calculation, OpenAI may lose $4-5 billion this year.

AI Industry Faces Heavy Pressure

It can be seen that the development cost and operational cost of large models account for a large proportion of the expenditure of artificial intelligence companies. If these costs cannot be reduced, will these companies charge higher prices for artificial intelligence tools?

Ion Stoica, co-founder of enterprise software company Databricks, pointed out that the industry is confident that the inference cost will continue to decline significantly, which means that OpenAI may obtain more reasonable profits from its models in the next few years. However, the training cost may be more complicated, and the company may invest as much money as possible to train larger models.

It is worth mentioning that on Wednesday (July 24), the US stock technology stocks fell across the board, and the technology stock concentrated NASDAQ Composite Index plummeted by 3.6%, setting a record for the largest single-day drop since October 2022; the S&P 500 index plummeted by 2.3%; the Dow Jones index also fell by 1.2% on the same day.

On Wednesday, the Mag Seven also suffered the largest single-day drop since October 2022, and each stock fell, which is very rare.

The violent fluctuation of technology stocks seems to indicate that more investors are slowly believing a point of view on Wall Street, that is, the bubble caused by artificial intelligence in the past year will inevitably burst.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.