OpenAI Raising At $100 Billion Valuation

Channel: Alex Kantrowitz

Published at: 2024-08-30

YouTube video id: M1eC-VfbN4U

Source: https://www.youtube.com/watch?v=M1eC-VfbN4U

this funding round has it all it has
Apple potentially investing Nvidia
looking at it the the numbers are just
astounding at a hundred billion dollar
for a private Market Round And as you
called it search GPT they started
positioning themselves for this another
gigantic funding round and also this is
at a time where we saw articles from Ed
zitron and others starting to question
could this ever be a profitable company
you know what is that actual line to
profitability so I think I think this is
a very very important funding ground and
as you said not from a purely Financial
perspective but more from a big
technology strategic perspective if
apple is actually involved and apple is
now building a tighter connection with
open AI I think this could be very
interesting and obviously when we see
caneri actually work in the upcoming uh
iOS 18 results and uh you know I think
this is going to be the relationship
between open Ai and other technology
firms this is potentially going to
outline what it looks like for the next
few years yes oh can you turn your gain
down a tiny bit tin bit it's coming in a
little bit Yeah blown out
okay and so you mentioned it that we do
have apple involved in this round
potentially we also have Nvidia
potentially involved in this round and
of course Microsoft so there's like four
big players here there's Apple Nvidia
Microsoft uh and Thrive which is Josh
kushner's Venture Capital firm and
Thrive is expected to lead this round do
you read anything into the fact that
Microsoft has sort of gone from the big
funer to one that might take not
necessarily a back seat but at least the
the co-pilot seat on this one to use one
of their favorite phrases
cheeky there Alex I think well first of
all I do Thrive leading the round was
very interesting to me because you know
I hav't seen them making headlines
necessarily in the past few years and
only from this announc go back and look
that they went from it was only a
billion under management a few years ago
to now 14 billion under management that
they just raised a gigantic $5 billion
fund last year so clearly they're ready
to deploy it and seeing the cushioners
back in the news in some kind of
capacity is always an interesting thing
but yeah I think this is going to be the
Apple connection is the most important
one because it's clear that yeah
Microsoft is no longer the investor and
partner of an open AI but still does
have more specific economic interests
than any other company will ever be able
to have with them and all that was
outlined in the that early 10 billion
dollar round back in January 2023 so
this company it just becomes Messier and
more complicated and more unclear of
what is the financial structure what
this isn't even a traditional cap table
who is investing and why I don't know I
think yeah it's less clear with all of
the news that came out than I think even
before the headlines started to leak and
here's my hot take on Microsoft's
position in the funding and I know
nothing about this I expect Microsoft to
be of those four the company that puts
the least amount of money in if all four
go in I think this is something that
Microsoft understands that it needs to
continue to invest in to show adjacency
to open AI but is really working hard to
build its own uh its own uh AI ecosystem
and research house and product
organization and it sees that a lot of
this has become commoditized and
therefore it's not going to continue to
put the amount of money that it did into
open AI as it has in the past
now there's one other interesting thing
that's happened here which is that
thrive right so Thrive Capital they led
the sort of uh uh F well it's not really
a funding it's the buyout of employees
shares at an $86 billion valuation last
year and now they are going to be you
know they're said to be leading this
one and there's a there's an item in the
information that talks about how
this is from Corey Weinberg
um it it's he says these inside rounds
usually signal that smart investors are
not banging down companies doors to
invest at that price there are
exceptions of course thrives doubling or
doubling or tripling down on open AI uh
on open a has been raising eyebrows
among competitors the prospect of open a
raising billions or trillions more
directly from Sovereign wealth funds in
the Middle East May raise eyebrows even
higher with an important constituency
the US government so basically what Cory
is saying is like if you have something
like a Thrive going in basically Against
the Grain buying shares and then um
leading uh you know the next round the
indication is that the rest of Silicon
Valley isn't so eager to put as much
money into open AI as perhaps open AI is
seeking is this a red flag here I think
it's definitely a red flag especially
the idea of at a certain point where do
you get more money when you get into
numbers this astronomical there's still
only a somewhat finite Capital base that
could actually you know feed this
continued need and as it's as he said
Middle Eastern Sovereign wealth funds
are one of those commonly associated
funding sources and with something
sensitive like generative AI that could
be a problem so I think but but the
question around you know again buying
out employee shares rather than
investing more in a company that is
losing five bill billion dollars is
insane to me like rather than just
continued investment into products that
can grow and will grow and will kind of
be that source of Revenue that will
actually justify these insane valuations
so yeah I think it definitely should
raise eyebrows and and where else do you
go from here I mean again a hundred
billion dollar valuation as a private
company I think there's bite dances
somewhere around there or was around
there there's only very stripe is one of
the only other ones that and these are
in bite dance and stripe again are
companies with very very mature Revenue
products and and their mature businesses
whereas open AI is still this crazy bet
that does not have any clear path to
actually becoming a great business so
yeah I think it should raise red flags
right so that here's a question for you
then is this a good investment like all
right you you could say that Microsoft
made a great investment in open AI back
in the day when openi was pioneering all
these new techniques and release chat
GPT started the generative AI wave I
think we can agre great money spent by
Microsoft but then you look at some of
the numbers and you you mentioned one of
them um that are coming out around this
funding round so first of all the
information has that opening I could
lose up to 5 billion this year this is
based off of an information analysis we
also know that uh chat GPT they say they
say that chat GPT usage has doubled so
now this is the first official new
number that we've gotten it open that
chat GPT is doing 200 million weekly
active users but we also know that open
AI spent 100 million uh actually this
might be good numbers open AI spent more
than 100 billion million to build GPT 4
and this year open a said its Revenue
was 3.4 billion uh on an annualized
basis so put that that all together I
mean it does seem like wait hold on
second how are they losing 5 billion if
GPT 4 only cost 100 million to build do
you think that's all inference costs
like where are they losing this money or
is it just training the next model yeah
I think I mean combination of the actual
ongoing compute for every single chat
GPT query especially for unpaid members
of people like nonsubscribers using chat
GPT training the next model I think it's
I mean I don't think that's an unre
reasonable thing again around just the
overall compute required to operate a
service like this I mean every dolly
image you're creating every uh every API
call so so I think that's that's
definitely not unreasonable it is
interesting to me though that I mean in
terms of the way these funding
announcements leak I think is worth
bringing up because one thing that
happened that in the last few years
especially during covid especially with
these kind of high octane fund rounds is
this idea that the leak happens during
the fundraising itself in order to sell
set that Target valuation that once the
leak happens and they say hundred
billion do in everyone's mind it's
hundred billion whereas in the past you
know the news was the funding is done
and here's what it was done at and a lot
of the times People Protected the
valuation of that fundraising round with
all of their heart like every Bank
involved every VC involved would never
give up the actual valuation so I think
it's clear that this game I'm trying to
create signaling around where this uh
where these numbers are in order to
drive interest at those numbers is still
happening and I think is never a good
sign
right H okay I'm just looking here if
there's anything else we want to cover
on this
okay yeah yeah here's another point
right and also one of the things that
I've heard about openai is that they're
just not trying to sell anything at a
profit now so basically they're trying
to show that the engagement numbers are
going up that they're entrenched as far
as every AI business and if you're
building you they want you building an
open Ai and they're not really putting
profit at uh at the Forefront but again
I think the main issue here is that
you're only entitled to a certain
percentage of open ai's profits you
don't even own part of the company so
like let's let's say they convert and
they become you know some sort of
traditional structure and you've
invested in this nonprofit and then they
IPO you don't even have a stake in that
like that to me is like why would you
ever want to invest in that unless
you're trying to make this strategic
Bridge like apple obviously is like
Microsoft has in the past maybe Nvidia
has some interest there but the Thrive
putting all this money in it and leading
the round I think is is really it's it's
an interesting business play I don't see
how it aligns with the traditional AI um
sorry the traditional VC investing
unless what it's trying to do is say hey
we have open AI in our portfolio company
and it believes that AI is going to be
big enough that that will be sort of
like this Flagship investment that will
attract others but it's still a lot of
money to pay for marketing well no
you're right that this is this is the
weirdest company in existence the more
we're digging into this and I'm actually
surprised that most of the reporting
treats it like a tradition funding round
but remember this is a company where the
fundraising in the past a lot of was in
Cloud credits and then now even you see
a lot of it is strategic considerations
for an apple I mean Apple can't give
them Cloud credits maybe they'll give
them I don't know free iPhones or
MacBooks or something else like uh I
mean at every level this is a company
where nothing is normal nothing is
standard or in terms of its structure
and and we still know so little about
exactly what are the the terms of these
different deals what are the terms of
whose financial interest lies where
because again even that that structure
of what is it it's like yeah up until a
certain percentage of profits that still
get capped at a certain point yeah
exactly like we we know that from I
think two years ago so from any
subsequent funding round were there
different stipulations were there some
Cloud credits how much is cash yeah
there's remains a lot Unknown about open
Ai and its business structure do you
think meta is a threat to chat GPT I
mean we talked about in the past about
how M Mark Zuckerberg saw chat GPT take
off massive consumer product he needs to
build his own of course he's built his
own and now uh met they had they've
released this meta AI which is built on
top of their llama model and this week
they put out some numbers uh with the
information they say it has at least 400
million monthly active use users which
is double open AI chat GPT weekly active
um which again is comparing apples to
oranges but there's just the the
difference uh the the comparison and 40
million daily active users uh this is
according to two current employees but
then meta had an executive comment so
interesting media strategy there but um
40 million daily active users of meta AI
which is uh baked into like almost all
of meta's messaging products is that
good I pretend to think it's not I think
that's actually terrible and it's clear
that that number leak because I actually
I got a I don't do do you follow Mark
Zuckerberg on Instagram yes because yeah
he gets I get I got a broadcast channel
message I don't know if you know the
broadcast channels is something meta is
really trying to push the idea that you
can have like one to many message push
from uh for influencers and creators and
Zuckerberg is one of the more active
ones but basically he was saying he sent
a message saying that llama is growing
even faster than I expected almost 350
million downloads and a 10x jump in
monthly usage since the start of the
year so he's pushing this message and
again we need to separate out llama from
meta Ai and meta AI I the only time I've
used it is when I've accidentally ended
up in it for an with an Instagram search
and it actually it and it returns
results that are worse because I want to
actually search on on Instagram and
instead it gives me me a more Half Baked
generative AI response so I am guessing
that the meta AI usage and you can only
imagine on Facebook and the average
Facebook user ending up in some weird
rabbbit hole of generative AI
accidentally so I think the meta AI side
is probably being oversold a little bit
it's still certainly very well
positioned when you can start properly
banging it into consum consum products
but I think llama is the bigger threat
to open Ai and especially I mean in the
context of this giant funding potential
funding round llama is such a brilliant
strategic mov and we've talked about it
to go open source and say basically
we're not going to charge you for every
API call here's the model hosted on your
own compute and servers I think that to
the open AI business is a much much
bigger threat than meta AI is to Chachi
is a consumer product yep that totally
makes sense but it's also sort of goes
to show that this stuff just still has
like limited appeal I think to Consumers
I think mostly because they're just
overwhelmed like regular people are just
overwhelmed in terms of what do I do
with this like okay you can sort of
speak with these agents and have like
interesting conversations but people
just don't know where to go and I think
in most of them including uh perplexity
and and chat jpt you're starting to see
some of these like prompts that sort of
push you towards different activities
that you should try to sort of engage
with within them but I do love the one
line from the information story after it
gives these new updated numbers and his
like proud quotes from meta Executives
it says it's unclear how many people are
using meta AI unintentionally I'm like
well yeah well no pretty important
caveat wouldn't you say as we said I
mean and that's the only way I've used
it but but I think we got we have to
distinguish perplexity
from meta AI because perplexity is going
after search and search is a function
that we all know how to use and use in
our daily lives all the time versus the
the meta AI products again have been
jammed into where your people regularly
do search and search on social platforms
has become huge like Tik Tok there's
been endless coverage that it could be
cutting into Google search itself and
it's become the search engine for genz
so I actually was more surprised because
again when someone searches on Instagram
especially when they're searching more
for reals and other content like that
they want an output of a reel or a photo
they don't want a generative AI answer
so it's almost the most backwards way to
try to release this kind of uh product
to your consumer base and I think it's
actually bad for the users yeah it's
really weird do do you think that um
meta Ai and threads have kind of a
similar feel to them which is that
you sort of get it having seen it work
elsewhere but it still just doesn't
really work in the setting that they
existed well no the thing I wonder and I
think Zuckerberg is peing right now and
uh certainly like the days of just
trying you know everyone going after him
are a few years past but I do Wonder
these kind of products at a company like
that do they believe they're successful
are they still sitting there like High
iing each other saying threads is a
massive success because these numbers
400 million 100 whatever threads is it
now 100 or I think they said 200 million
monthly active when you just jam it into
a product the three products that 3.2
billion people use every month you can
get those numbers easily even with a bad
product that is not actually working and
will not grow even again on Instagram
every fifth scroll I get a a row of
threads that is trying to encourage me
to link out to which if I didn't know
what it was I could very accidentally
click on those so I I do think that yeah
I think it feels similar to threads in
that it's it's very easy to hit those
numbers that seem really big without a
product that is necessarily doing great
so I I wonder how realistically they
actually do evaluate these internally oh
I'm sure they view it with like real
science and they have like so many
metrics that we've never heard of before
looking at like the momentum the
acceleration the retention all these
things so but I do think that they also
like everybody in Silicon Valley know
that you need to Hype something a little
bit before it's real to make it real
because this is just like Network
effects on both of these with threads
it's like you need people to be posting
and then interesting stuff circulating
in the timeline and with Med AI you need
people to have good experiences with it
so that it spreads with word of mouth
and like you're like calling meta AI
into a group chat which you can no no I
I just I disagree I think it's actually
the opposite because I think meta AI
does not need Network effects it just
needs good output because again the word
of mouth this was cool this was
interesting is almost not needed it was
needed for chat GPT but for meta just
make it good make it actually make sense
in the product and when you have that
you know committed user base that's all
you need to do so I think actually
versus threads yeah that pure Network
effect type uh product but I think again
meta AI has become only more confusing
for me as it's been developed but the
Llama strategy I think is is is vicious
in terms of the whole landscape the way
Zuckerberg and the company have uh
Unleashed that on the whole