OpenAI's Valuation Soars as Tech Giants Consider Investment

Nvidia isn't the only tech titan targeting OpenAI deal

Generations from now, how will historians describe Nov. 30, 2022? That was the day OpenAI, an artificial intelligence research organization headquartered in San Francisco, introduced ChatGPT to the known universe. Related: Veteran fund manager unveils startling Nvidia stock forecast OpenAI was founded in December 2015 by, among others, entrepreneur, investor, and current CEO Sam Altman and Tesla's chief executive Elon Musk, with a mission to develop "safe and beneficial" artificial general intelligence, defined as "highly autonomous systems that outperform humans at most economically valuable work." "We've trained a model called ChatGPT, which interacts in a conversational way," OpenAi said on that first day. "The dialogue format makes it possible for ChatGPT to answer follow-up questions, admit its mistakes, challenge incorrect premises, and reject inappropriate requests." The chatbot was viewed in-house as a "research preview," Sandhini Agarwal, who works on policy at OpenAI, told the MIT Technology Review; a tease of a more polished version of a two-year-old technology and an attempt to iron out some of its flaws by collecting feedback from the public. "We didn't want to oversell it as a big fundamental advance," said Liam Fedus, a scientist at OpenAI who worked on ChatGPT. The public reacted much differently to ChatGPT, and it went viral on social media, with users sharing examples of what it could do. OpenAI CEO: 'Our tools part of people's lives' "I think it was definitely a surprise for all of us how much people began using it," Agarwal said. "We work on these models so much, we forget how surprising they can be for the outside world sometimes." Within five days of its release, the chatbot had attracted over one million users. Related: Analyst resets Apple stock forecast ahead of crucial rollout By comparison, it took Instagram about 2.5 months to reach one million downloads, while Netflix had to wait around 3.5 years to reach one million users, according to Exploding Topics, which cited Statista, Reuters, and Similarweb. "We are excited to introduce ChatGPT to get users' feedback and learn about its strengths and weaknesses," OpenAI said. OpenAI isn't the only one getting excited about ChatGPT. It now has more than 200 million weekly active users -- twice as many as it had last November, Axios reported on Aug. 29. OpenAI said over 90% of Fortune 500 companies are using its products, and usage of its automated Application Programming Interface (API) has doubled since the release of GPT-4o mini in July. "People are using our tools now as a part of their daily lives, making a real difference in areas like healthcare and education -- whether it's helping with routine tasks, solving hard problems, or unlocking creativity," Altman said in a statement to Axios. In June, Apple (AAPL) named OpenAI the first official partner for its AI platform, Apple Intelligence. Apple's new AI will feature an improved Siri voice assistant, text proofreading, and custom emoji creation. Apple CEO Tim Cook said the tech giant has big plans for the chatbot, including integrating ChatGPT into experiences within iPhone, Mac, and iPad, "enabling users to draw on a broad base of world knowledge." "We are very excited about Apple Intelligence, and we remain incredibly optimistic about the extraordinary possibilities of AI and its ability to enrich customers' lives," Cook told analysts during the company's third-quarter earnings call on Aug. 1. "We will continue to make significant investments in this technology and dedicate ourselves to the innovation that will unlock its full potential." Both Apple, which is slated to release its iPhone 16 series in September, and AI chipmaking behemoth Nvidia (NVDA) are looking to pump money into OpenAI to strengthen their positions in the highly competitive AI race. Nvidia, undeniably the biggest beneficiary of the AI frenzy because of soaring demand for its AI semiconductor chips, has invested in other companies. In August, Nvidia's latest 13-F filing of holdings with the Securities and Exchange Commission showed it owned a total of nearly $400 million worth of five companies, including Arm Holdings. The investment would be part of a new OpenAI fundraising round and value the ChatGPT maker above $100 billion, according to the Wall Street Journal. Venture capital firm Thrive Capital is leading the round, which will total several billion dollars, and software kingpin Microsoft (MSFT) is also expected to participate. How much these tech heavyweights will invest in OpenAI this round has not been determined. To date, Microsoft has been the primary strategic investor in OpenAI; it gets a 49% share of the AI startup's profits after investing $13 billion in multiple tranches since 2019. Fighting for a piece of AI market While OpenAI faces serious competition from other AI startups and big tech companies, ChatGPT remains a market leader. Facebook parent Meta Platforms (META) said its Llama artificial intelligence models are being used by companies, including Goldman Sach (GS) , and AT&T (T) , for business functions like customer service, document review, and computer code generation More AI Stocks: Llama models have been downloaded almost 350 million times since Meta began releasing them publicly last year, an increase from the 300 million downloads the company announced when it released the biggest version of its latest Llama 3 model in late July. Usage via cloud providers like Amazon Web Services and Microsoft Azure has also increased, more than doubling between May and July this year. Gemini, formerly known as Bard, is a generative artificial intelligence chatbot developed by Google and rolled out last year. The most popular search engine in the world got into trouble in February when users discovered that Gemini was unable to reliably create images of white people. With the latest version of its image generator, Imagen 3, Google said, "We've made significant progress in providing a better user experience when generating images of people." "We don't support the generation of photorealistic, identifiable individuals, depictions of minors or excessively gory, violent or sexual scenes," Dave Citron, a Google senior director, said in a blog post. On Aug. 28, Google, which shut down Gemini's ability to depict any human, began turning the feature back on for users who pay to use the English language version of the chatbot. Elon Musk, who resigned from his seat on OpenAI's board in 2018 due to potential conflict of interest concerns regarding Tesla's AI development for self-driving cars, now runs his own artificial intelligence program called xAI. In June, Musk threatened to ban iPhones, iPads, and Macs in the office if Apple integrated ChatGPT into the Apple operating system The ban would be in effect for all his companies, including SpaceX and X, formerly Twitter, and even visitors would have to leave their devices at the door. Related: Veteran fund manager sees world of pain coming for stocks

NVIDIA, Apple Blow OpenAI's Bubble

This news comes on the heels of NVIDIA's impressive July quarter results, where revenues surpassed $30 billion -- a 122% increase from the previous year. Besides NVIDIA, Apple and Microsoft are also considering participating in the financing. Thrive Capital is reportedly leading the round with a $1 billion investment, while NVIDIA is evaluating a potential contribution of around $100 million, added the report. Notably, Microsoft has invested $13 billion in OpenAI overall. While OpenAI is dependent on the NVIDIA GPUs to train its upcoming frontier model, Apple recently partnered with the company, integrating ChatGPT into Siri. On Thursday, it was reported that ChatGPT has surpassed 200 million weekly active users, doubling its count from the previous year. Surprisingly, this year, OpenAI has released only GPT-40 and GPT-40 Mini. However, the company has announced several other products, including Sora, SearchGPT, Voice Engine, GPT-40 Voice, and most recently, Strawberry and Orion. It seems that the announcements were likely intended to generate hype and raise funds. Following the investment, the money will ultimately flow back to NVIDIA as OpenAI purchases more compute resources to train its next frontier model. NVIDIA is keen to secure its ecosystem for the year ahead and is now concentrating on its Blackwell GPUs. This lineup includes models B100 and B200, built for data centres and AI applications. NVIDIA chief Jensen Huang said that the Blackwell is expected to come out by the fourth quarter this year. "We're sampling functional samples of Blackwell, Grace Blackwell, and a variety of system configurations as we speak. There are something like 100 different types of Blackwell-based systems that were shown at Computex, and we're enabling our ecosystem to start sampling those," said Huang. However, previous reports indicated that these could be delayed by three months or more for Blackwell due to design flaws, a setback that could affect customers such as Meta Platforms, Google, and Microsoft, which have collectively ordered tens of billions of dollars' worth of these chips. Huang believes this is just the beginning and that there's much more to come in generative AI. "Chatbots, coding AIs, and image generators are growing rapidly, but they're just the tip of the iceberg. Internet services are deploying generative AI for large-scale recommenders, ad targeting, and search systems," he said. OpenAI's GPT-40 voice features, demonstrated during the Spring Update event, were made possible with the help of NVIDIA H200. "I just want to thank the incredible OpenAI team, and a special thanks to Jensen and the NVIDIA team for bringing us the advanced GPU that made this demo possible today," said OpenAI CTO Mira Murati, during the OpenAI's Spring Update. Apple is catching up in the AI race. The company recently released iOS 18.1 beta 3, introducing the AI-powered Clean Up tool under Apple Intelligence, which removes unwanted objects from photos to enhance image quality. This feature of Apple Intelligence is based on the 3 billion parameter model, which Apple developed recently. While Apple Intelligence is perfect for day to day tasks, it is not focusing on better reasoning capabilities which will be required in the near future. This is where OpenAI comes into the picture. "This is a sign that Apple is not seeing a path where it makes sense to build a competitive, full feature LLM," said Gene Munster, Managing Partner, Deepwater Asset Management on Apple's investment in OpenAI. He added that this means Apple will be reliant on OpenAI, Google, and possibly even Meta to deliver about a third of their AI features in the long term. OpenAI chief Altman is a huge fan of Apple, and his startup eventually ended up partnering with the company. He recently lauded the Cupertino-based tech giant for its technology prowess, saying, "iPhone is the greatest piece of technology humanity has ever made", and it's tough to get beyond it as "the bar is quite high." As a part of Apple-OpenAI partnership, iOS, iPadOS, and macOS users would get access to ChatGPT powered by GPT-4o later this year, where users can access it for free without creating an account, and ChatGPT subscribers can connect their accounts and access paid features right from these experiences. Interestingly, when OpenAI announced the ChatGPT desktop app, it was first released for Mac users rather than for Microsoft. Moreover, it was said that the company wasn't paying OpenAI anything, as it was doing the startup a favour by making ChatGPT available to billions of customers. However, investing in OpenAI today would be a smart move for Apple, as it would provide access to the latest OpenAI models, similar to how Microsoft's AI services primarily rely on OpenAI. Meanwhile, OpenAI definitely has a soft corner for Apple. This affinity was clearly displayed at the OpenAI Spring Update, where MacBooks and iPhones were prominently used, while Microsoft Windows products were notably absent.

The threat to OpenAI is growing

Apple, Nvidia and Microsoft are in talks to invest in OpenAI, maker of ChatGPT, at precisely the moment when it's become apparent that the company will face tougher competition than ever in the burgeoning artificial-intelligence market. Much of that new competition is coming from startups that promise to undercut OpenAI's services with ones that could be cheaper to use, and also better at certain narrow tasks. At least one tech giant sees promise in the new crop of AI startups. Mark Zuckerberg, chief executive of Facebook's parent, Meta Platforms, is positioning his company as a champion for the little guys, letting outside developers use Meta's cutting-edge AI model, Llama, free of charge. Google has also released an open-source AI that's not nearly as capable as Meta's. In a July letter, Zuckerberg argued that this open-source approach "will ensure that more people around the world have access to the benefits and opportunities of AI" without concentrating power in the hands of tech giants. Open-source software can be used commercially by pretty much anyone. Examples include the Android operating system, developed by Google but available for any manufacturer to use in mobile devices without paying. That stands in contrast to the more typical, "closed" approach taken by companies that control who can use their software. Microsoft, for instance, charges manufacturers a licensing fee to install its Windows operating system on their computers. Apple doesn't let other companies use its iPhone or Mac operating systems. For the most part, OpenAI falls into this latter camp -- charging end users and companies to access its most powerful models. Many experts believe we will eventually all rely on a variety of AIs -- some from closed providers like OpenAI and Google, others from the kind of open-source challengers Zuckerberg is championing. The nature of that mix will determine whether it was worth it for companies to spend tens of billions of dollars building advanced AIs. The most recent example of that investment: Apple and Nvidia are in talks to join Microsoft in investing in OpenAI's next round of financing, which would value the company at $100 billion. Meanwhile, open-source AI is catching up to the big early movers, especially in day-to-day business uses that demand consistent performance and low costs. Meta announced Thursday that versions of Llama have been downloaded nearly 350 million times by software developers and tinkerers -- 10 times what that number was a year ago. An apples-to-apples comparison of those numbers with ChatGPT isn't possible, but OpenAI says the ChatGPT service now has 200 million weekly active users. For many everyday applications, AIs that are trained to do only specific tasks can be better and cheaper to run, says Julien Launay. His startup, Adaptive ML, uses Llama to train small, customized AIs for companies. These smaller AIs can be more easily customized by users than giant, closed AIs like ChatGPT, he adds. DoorDash, Shopify, Goldman Sachs and Zoom are among the companies that have said they use open-source AIs for tasks ranging from customer service to summarizing meetings. Procore Technologies, which makes a platform for managing complicated construction projects, is a good example of how a variety of both closed and open AIs can be used for real-world tasks, from estimating costs to coordinating actual building work. AI can be helpful at lots of points in that process. At the start of this year, when Procore first rolled out features that used large language models, the company relied on OpenAI's ChatGPT, accessed through Microsoft's cloud platform, says Rajitha Chaparala, vice president of product and AI at Procore. This kind of AI used to be costly, but prices have plummeted in the past 12 months. Now, however, Procore has built software that makes it easy to use just about any AI throughout its system. This illustrates one way retaining customers could be an issue for OpenAI. Most companies do not want to be beholden to a single AI vendor, and for now at least, switching between them is relatively easy. This pits OpenAI's models, even if they're getting more affordable, against ones that its customers are now able to develop on their own. Open-source AI may make sense when running on individual devices like new AI-enabled PCs and smartphones, says an OpenAI spokesman. In general, the company welcomes competition for any of its services, he adds, because it is confident it is best positioned to deliver the capabilities, prices and performance that software developers want. All this competition from open-source AIs grows the pool of engineers who know how to use AI, which translates to growth in demand for OpenAI's services, as well, says the OpenAI spokesman. An even greater level of transparency than most open-source AI models offer will be necessary when it comes to AI systems for sensitive fields like medicine and insurance, argues Ali Farhadi, CEO of the Allen Institute for Artificial Intelligence. In February, the Allen Institute, a nonprofit research group that aims to solve the world's problems through AI, released its own open-source AI, and took the unusual step of also releasing all the data on which it was trained, and all the steps involved in tuning the model to offer better answers. When it comes to bigger-picture concerns about safety, opinions vary as to which approach is more likely to stave off worst-case AI scenarios like the malign, all-powerful intelligence of Skynet in the "Terminator" movies. Advocates of closed systems say they have the resources and control to help prevent misuse of the technology, and that open-source tools can be abused by bad actors. Open-source backers say their systems are subject to public scrutiny, allowing them to detect problems more easily, and deal with unintentional harms from their systems, which would be difficult to detect in closed systems. Long before we get to the point of battling sentient AI overlords, though, those making systems of more modest power will have to prove their enormous investments are worthwhile.

Nvidia and Apple want in on OpenAI

Kamala Harris' grocery price gouging ban? No economist on earth will support it, strategist says Chip giant Nvidia is in talks with OpenAI about potentially contributing $100 million in funding, Bloomberg reported citing people familiar with the matter. Apple and Microsoft are also considering providing financing. This new round of fundraising, led by venture-capital firm Thrive Capital with a $1 billion investment, would value OpenAI at upwards of $100 billion, The Wall Street Journal first reported Wednesday. Microsoft owns a 49% share of OpenAI's profits after contributing approximately $13 billion to startup, including $10 billion in backing in January 2023. Over the past two years, OpenAI has become the most influential generative AI company on the market. ChatGPT hit 100 million weekly users earlier this year, and kicked off the genAI and chatbot boom with the success of its flagship model. With that growth, OpenAI's influence -- and value -- has continued to snowball. A deal allowing employees to sell stakes in the company valued OpenAI at $86 billion late last year, nearly triple what it was earlier in 2023. Nvidia has been one of the biggest beneficiaries of the AI boom, which brought the Santa Clara, California-based chip giant's market capitalization to $3 trillion earlier this year. Nvidia's powerful chips are critical infrastructure for companies like OpenAI, and are used to train genAI models. Ultimately, OpenAI is hoping to reach what's known as artificial general intelligence, or AGI -- a futuristic view of machines that can pretty much do anything just as well as humans. Last month, the company shared a five-level system it developed to track its progress with employees, with a spokesperson reportedly telling Bloomberg it was already at level two, "Reasoners." That's where AI that can perform basic problem-solving and is on the level of a human with a doctorate degree but no access to tools. Critics, including former OpenAI employees, have warned, however, that the company and its ambitions pose "serious risks." In May, OpenAI disbanded its "Superalignment" team, which was responsible for working on the problem of AI's existential dangers. The company said the team's work would be absorbed by other research efforts across OpenAI.

Apple and Nvidia could be OpenAI's next big investors | TechCrunch

Nvidia and Apple are reportedly in talks to contribute to OpenAI's next fundraising round -- a round that could value the ChatGPT maker at $100 billion. Per its sources, the New York Times says earlier OpenAI investor Thrive Capital would lead the deal should it happen. (Bloomberg was the first to report Nvidia's involvement, and The WSJ broke the story of Apple's potential interest.) Microsoft -- which already owns 49% of OpenAI -- may participate as well. OpenAI needs capital. Its annualized revenue reportedly eclipsed $3.4 billion early this year, but it's said to be on track to lose $5 billion by year end as it expands its AI training and staffing efforts. OpenAI has ties to both companies. It runs and trains its generative AI models primarily on Nvidia GPUs; meanwhile Apple earlier this year agreed to integrate ChatGPT into iOS as part of Apple's forthcoming suite of AI features, Apple Intelligence.

Why Nvidia, Apple and OpenAI need to strike a big deal

Thrive has already invested bundles into OpenAI in the past, and OpenAI's biggest investor, Microsoft, is also said to be ready to pour more into the company. But if the unconfirmed reports are true, Nvidia and Apple are keen to invest as well, which says as much about their needs as it does about OpenAI's. OpenAI badly needs the money, it is burning through cash at a fearsome rate. Building frontier artificial intelligence models is dizzyingly expensive. While it is reportedly on track to generate annual revenue of $US3.4 billion, an analysis by US website The Information this year calculated that it could make a loss of $US5 billion this year, and run out of funding without a top-up. It has already raised $US11 billion in its previous funding rounds, but the race to eventual artificial general intelligence isn't going to get any cheaper, with the cost of servers, chips, rapidly growing workforce and deep-pocketed rivals weighing on the mind of its co-founder and chief executive Sam Altman. The likes of Google, Meta, Amazon and Elon Musk's xAI in the US are pouring billions into developing rival AI capabilities, while AI-native firms like Anthropic and Cohere have also raised a fortune. In China, the likes of Tencent, ByteDance and Alibaba are in the race, and French firm Mistral AI is one to watch. OpenAI's unusual hybrid structure - where it is split into a nonprofit arm and a "capped profit" division where apparently no investor can make more than 100 times their money back - means an IPO would require a significant restructure. So it seems likely OpenAI will be going back to the well for fresh investment for the foreseeable future. To get a seat at a table where it has been notably absent. Unless it is working away on something secret, Apple has been left somewhat on the sidelines in the global AI bonanza. In June, it announced a major AI overhaul of its personal assistant, Siri, and apps across iPhones, iPads and Macs, to compete with phones from Samsung, Google and others running the Android operating system. Apple also signed a landmark deal with OpenAI, which meant its generative AI model GPT4.0, for which the company usually charges $US20 a month, will be offered free to Apple users. For OpenAI the deal was a win as widespread iPhone ownership will make people more likely to use its services than others like Google's Gemini and Anthropic's Claude. It is entirely logical for the company that has grown the most dramatically from the AI boom of the last 3½ years to be a big supporter of the company that kicked it all off. But Nvidia wouldn't be investing out of any sense of gratitude. The company needs OpenAI and its rivals to keep spending more on its equipment. Its quarterly earnings call on Thursday featured questions from analysts seeking CEO Jensen Huang's views on return on investment for the big AI companies, and his answers were a bit waffly. The last year has seen some notably big AI pioneers unofficially raise the white flag, with their founders and key staff being hired by big tech firms (skirting antitrust concerns). Mustafa Suleyman, who co-founded Inflection after also co-founding DeepMind (which became Google DeepMind via acquisition), defected to Microsoft with key staff in March, shortly after the company raised $US1.3 billion to take on OpenAI et al. Then in August Amazon hired all the top employees from Adept AI, another OpenAI competitor that had been heavily backed. Nvidia is already an investor in AI specialist or related companies including Cohere, Perplexity, Inflection, Cohesity, Mistral, Weka and Wayve. It gets a great return if these companies succeed, and if they fail, at least they will be very well-paying customers in the meantime.

OpenAI is the new Nvidia for investors that even Nvidia wants in on

This story is available exclusively to Business Insider subscribers. Become an Insider and start reading now. Have an account? Log in. Those looking to join the next funding round could include Microsoft, Apple, and Nvidia, Bloomberg reported, citing sources familiar with the discussions. Apple, Microsoft, and OpenAI spokespersons did not immediately respond to a request for comment from Business Insider, and a spokesperson for Nvidia declined to comment. Though it's a startup with an unconventional structure -- a nonprofit partnered with a capped profit arm -- OpenAI has already proven to be the leader in AI among a growing field of formidable competitors looking to capitalize on the technology. That Apple, Microsoft, and Nvidia -- publicly traded companies that sit in the small trillion-dollar market cap club -- also may want to support OpenAI's latest funding round, according to reports, only reiterates the startup's position as one of the most valuable companies in the world. Their bets on OpenAI, however, may not come as a complete surprise. Microsoft has invested more than $13 billion in a partnership with the startup, despite recently identifying OpenAI as a competitor. Apple also announced an OpenAI partnership in June that would integrate ChatGPT into the company's operating systems if users opted in. For Nvidia -- a company started in 1993 that has recently seen a huge surge in hype because its chips power AI -- the company's reported interest in OpenAI funding tracks with its ongoing plans to invest in artificial intelligence ventures. In 2023, the chipmaker's venture capital arm, NVentures, invested in nearly three dozen AI-centered startups, a report from Dealogic, a data analysis firm, showed. Nvidia has said that the NVentures move is part of an initiative to feed an AI "ecosystem" that would be reliant on the company's technologies. "Nvidia's corporate investments arm focuses on strategic collaborations," Nvidia said in a December blog post. "These partnerships stimulate joint innovation, enhance the Nvidia platform, and expand the ecosystem."

OpenAI's $100 billion mega deal doesn't make a lot of sense. It doesn't have to

From its convoluted non-profit-for-profit structure to the brief ouster and return of its CEO, there is not much about OpenAI that's typical. The startup's latest funding round, which would reportedly value OpenAI at a whopping $103 billion, is a case in point. According to The Wall Street Journal, OpenAI is in talks to raise several billion dollars in a new funding round. In addition to traditional VC investors -- with Thrive Capital reportedly contributing $1 billion to lead the round -- a who's who of Big Tech powers such as Apple and Nvidia may apparently also join the funding party. Of course, OpenAI already has a very prominent Big Tech heavyweight in its corner: Microsoft, which invested $13 billion in the ChatGPT maker less than two years ago. According to the recent reports, Microsoft is also considering investing in the current round (though it's not clear if the investment would be in cash or cloud computing credits). The string of questions all of this raises is enough to tie up anyone's tongue. Is there any evidence that OpenAI's business can justify all this investment? Why are all these tech companies piling in? Can they get any return from OpenAI given its profit-capped structure? And isn't the tech industry under intense scrutiny from antitrust regulators who might look askance at such concentration? As the OpenAI funding mega deal moves closer to completion, some of the answers to the questions will likely start to come into focus. In the meantime, here are some key points to consider if you're trying to get a grasp of what's happening. OpenAI's revenue is reportedly just over $3 billion, putting the potential new valuation at more than 30 times the money it brings in. Most of its revenue comes from enterprise sales of ChatGPT, with very little coming from individual consumer subscriptions to the tool, and OpenAI is far from profitable, a person familiar with the company told Fortune. Work inside OpenAI is ongoing to game out ways to monetize its tools beyond sales to large enterprise customers. Advertising within results given by ChatGPT is one option being actively worked on, according to the person familiar with the matter. Another is creating versions of the chatbot that are packaged for specific needs, like travel, and sold that way to consumers or large customers, the person added. Still, the fact that OpenAI is seeking out new investment suggests that it's rapidly burning through the billions of dollars it's raised in recent years. And given the ever-escalating costs of training advanced AI models like OpenAI's widely anticipated GPT 5, as well as the costs of powering AI services, the need for cash is ever present. Sam Altman has said he needs $7 trillion for a separate chip manufacturing venture to power his AI dreams. Should OpenAI get to a point of profitability at some point, or go public, there is a world in which investors would be paid back well for their backing of OpenAI. Given the amount of the valuation, it's likely the number is based more on expectations, hope, than anything concrete in today's income statement. What investors definitely get in return for any future success of OpenAI is opaque. As with Microsoft's initial investment, new investors like Apple or Nvidia likely get a stake in future profits held by a separate entity operated by OpenAI. OpenAI trades in profit participation units, a form of equity, and the company is many entities in one: a nonprofit arm is in control of a for-profit arm, which itself has control of a holding company, which controls another for-profit entity, and that entity is what Microsoft is technically invested in. (Confused yet? You're not alone). Under the terms of Microsoft's 2023 deal with OpenAI, Microsoft gets first dibs over other investors. As Fortune reported at the time 75% of OpenAI's profits will flow directly to Microsoft until the sum that Microsoft invested (a not trivial $13 billion) is reached. All of this is to say, that for some the tech companies reportedly investing, the near-term motivation is probably less financial than it is strategic -- basically a way to stay close to the company that started the generative AI craze and to ensure access to its technology. Apple is already using ChatGPT as a basis for some of its upcoming offerings in Apple Intelligence -- something Apple is reportedly not paying OpenAI for. In 2019, before OpenAI had even released ChatGPT, the company said it was creating a for-profit segment of the company in order to sustain the costly AI work it was doing. However, the initial round of investors would have returns limited to 100x their initial investment, no matter how wildly successful OpenAI might become (an investment of $1 million dollars, in other words, could not see a return of more than $100 million). OpenAI said at the time that it expected "this multiple to be lower for future rounds," meaning later investors would have further limits put on their possible returns. Returns outside of the cap are set to go to the non-profit arm of OpenAI. That is, unless and until OpenAI achieves artificial general intelligence, or AGI, which the company loosely defines as "AI systems that are generally smarter than humans." Should OpenAI hit this hypothetical milestone, it's possible that investors could be left with no return on their investment when it comes to AGI. Any system that comes of a purported AGI technology is outside OpenAI's current licensing structure, and therefore outside the terms of any current investor deals. "Our structure gives us flexibility for how to create a return in the long term, but we hope to figure that out only once we've created safe AGI," the company wrote in 2019. Changes to the "capped profit" structure may already be on the way in an effort to keep investors happy. And it's possible that the current funding negotiations could include "post-AGI" licensing terms. As scrutiny of OpenAI has increased, so has its relationship with Microsoft as its biggest backer. The messy ouster of Altman late last year effectively undid work by Microsoft leaders to keep their dealings with OpenAI outside regulatory scrutiny. Microsoft has been the target of antitrust regulators in the past, and leaders were keen to avoid more entanglements. Now, regulators in the U.S. and UK are reportedly investigating the two companies' ties. Since then, Microsoft CEO Satya Nadella has been sure to talk up his company's independent AI work and research, even listing OpenAI as a direct competitor. Participating in a funding round for OpenAI that includes other of the world's biggest tech companies would further Microsoft's aim to show itself as more hands-off when it comes to the company. For OpenAI meanwhile, bringing on other Big Tech investors could offer some much needed diversification. Microsoft's recent moves to build up its own AI capabilities, including hiring the founders of Inflection AI and building its own in-house LLMs, is all the evidence OpenAI needs to understand the risk of being too reliant on Microsoft. Whether any of these machinations would pass muster with regulators of course is a big unknown. In July, Apple and Microsoft both gave up plans to take "observer" seats on OpenAI's board, underscoring the cautious approach the companies are taking while they're under the regulatory microscope. That said, U.S. presidential elections are only months away, and a change in administration could potentially change the government's view of Big Tech and AI.

Report: Nvidia, Apple could join OpenAI's multibillion-dollar funding round - SiliconANGLE

Report: Nvidia, Apple could join OpenAI's multibillion-dollar funding round Two more tech giants may join the new funding round that OpenAI is rumored to be raising. Citing sources familiar with the matter, Bloomberg reported today that Nvidia Corp. and Apple Inc. may participate in the investment. OpenAI is expected to raise several billion dollars at a valuation that could exceed $100 billion. That's up from the $80 billion it was reportedly worth in February. On Wednesday, multiple publications reported that Thrive Capital will lead the round with a $1 billion contribution. Microsoft Corp., OpenAI's largest investor, may up its stake as well. The software and cloud computing giant has so far backed the ChatGPT developer to the tune of $13 billion, much of which was provided in the form of cloud infrastructure. The report that Apple could invest in OpenAI comes a few months after the companies inked a high-profile product partnership. The iPhone maker will use ChatGPT to power Apple Intelligence, an upcoming suite of artificial intelligence features for its devices. The features are expected to roll out later this year. As part of the update, Siri will gain the ability to direct complicated user requests that it can't answer effectively to an OpenAI model. Additionally, ChatGPT will be integrated into Writing Tools, one of the new AI features included in Apple Intelligence. The capability will allow users to proofread, rewrite and summarize the text they enter into iOS apps. Nvidia, the other company that could reportedly join OpenAI's round, already has stakes in several of the ChatGPT developer's top rivals. In early June, Reuters reported that the chipmaker backed a $450 million funding round for Cohere Inc., which develops enterprise-focused large language models. A few days later, Nvidia joined a $645 million funding round into competing LLM provider Mistral AI SAS. Shortly after the investment, Mistral and Nvidia released a jointly-developed language model optimized for the latter company's chips. They've since introduced multiple smaller versions of the model that require less hardware. The neural networks are available in Nvidia's NIM container format, which makes it easier to deploy AI software on the company's graphics cards. Large enterprises often require the ability to deploy important software on-premises. If OpenAI eventually decides to provide that option to users of its LLMs, a technical partnership with Nvidia of the kind that Mistral AI detailed following its recent funding round might prove to be beneficial. Using technologies such as its NIM container format, Nvidia could help optimize the ChatGPT developer's models for on-premises AI clusters powered by its graphics cards. Recent rumors suggest that OpenAI may seek to reduce its reliance on the chipmaker's products in the longer term. Last month, The Information reported that the company has held talks with Broadcom Inc. and other semiconductor suppliers about designing a custom machine learning accelerator. It's unclear whether OpenAI is developing the processor solely for internal use or may also seek to sell it to other companies.

Investors are already valuing OpenAI at over $100B on the secondaries market

OpenAI is in talks to raise a new round of funding at an eye-popping $100 billion-plus valuation, sources told the Wall Street Journal this week. It turns out investors have already proven they are willing to value the company that high to get on OpenAI's coveted cap table. Multiple companies that track or facilitate secondaries deals - where investors buy shares from existing investors, not directly from the company - have seen investors pay prices that indicate an over $100 billion valuation. The primary deal that OpenAI is negotiating would reportedly be led by Josh Kushner's Thrive Capital, who would put in $1 billion, according to Journal reporting, with Microsoft, Nvidia and Apple, being rumored as investors as well. This would be quite the step up for the AI leader. The company was most recently valued at $86 billion in a secondary sale involving existing stakes in September, Bloomberg reported. Still, securities trader Rainmaker Securities has seen investors bidding on OpenAI stock at prices that value the company up to $143 billion. Caplight, a secondary data tracking platform, estimates that the company is currently worth more than $111 billion based on both secondaries activity and past traditional financing rounds. "There are a lot of investors that really want to be part of this story and want to be an investor in this company," Glen Anderson, co-founder and managing partner at Rainmaker Securities, told TechCrunch. "So a $100 billion valuation, is it rich? Maybe. But I mean if OpenAI can live up to the potential of what it could live up to, it may be a steal." Greg Martin, a co-founder and managing director at Rainmaker Securities, added that while the company valuation has risen quickly, so has its revenue. While OpenAI still reportedly burns a ton of cash, he said it's worth noting that the company went from having $0 in revenue just a few years ago to having billions today. The company aspires to hit $5 billion in ARR by the end of the year, according to The Information. "Obviously it is hard to put a proper valuation on OpenAI, but we are seeing a lot of demand," Martin said. "There is a fear of missing out on the premium the company is getting. There is certainly a cogent argument that the company could be worth a trillion dollars some day." While OpenAI's next official valuation is still yet to be determined, one thing is already for sure, this funding round will spark more secondaries activity around OpenAI and other AI competitors, Martin said. He predicts it will also give a valuation boost to companies including Anthropic, Cohere, Hugging Face and more. "It generates buzz. It generates excitement. It resets market expectations," Martin said.