ChatGPT’s parent company is rumored to be preparing to go public, and if you’ve ever used a chatbot to write an email, plan a trip or settle a debate, this initial public offering (IPO) will affect you in some way.
OpenAI is reportedly working with investment banks Goldman Sachs and Morgan Stanley on a confidential IPO filing that could be submitted to regulators as soon as next week. According to the The Wall Street Journalthe company aims to start trading in early September.
However, those plans have not been set. So before you get excited — or reach for your merchant app — here’s what you need to know.
How OpenAI’s IPO could affect ChatGPT
OpenAI faces an expensive problem: Building and maintaining artificial intelligence models requires massive computing infrastructure. The company has made significant capital spending commitments on data centers that will require additional capital to support.
Going public will give OpenAI access to a much larger pool of capital because it will open the company up to public stock markets instead of relying heavily on private investors, venture capital firms or internal cash flows. But it also means the company will have to answer to shareholders, which has implications beyond Wall Street.
When consumer technology companies go public, the pressure to grow revenue and meet quarterly goals can reshape the products people rely on. Netflix, for example, has repeatedly raised subscription prices and is cracking down on password sharing from 2022, while Reddit is ramping up efforts to monetize its API and advertising business ahead of its March 2024 IPO.
ChatGPT currently offers a free tier alongside its paid plans, but as a public company, OpenAI will face scrutiny over whether it’s doing enough to monetize its more than 900 million weekly active users — only about 50 million of whom are paid subscribers. That may result in changes to what is free and what is paywalled.
What is the value of OpenAI?
OpenAI was valued at $852 billion in a recent funding round, making it one of the most anticipated IPOs in years. In context, that’s larger than the market cap of most Fortune 500 companies.
This number is important to investors because it sets expectations. Retail investors who buy OpenAI stock when it goes public will likely be paying a premium on top of its already high valuation, and the company has yet to prove it can generate profits at a scale that warrants that valuation.
Is OpenAI profitable?
OpenAI’s chief financial officer, Sarah Friar, reportedly told the company’s leadership that more time may be needed before going public.
According to the JournalOpenAI missed several revenue and user goals. It also faces growing competition from Google and Anthropic, makers of Claude, which has grown faster than OpenAI in recent months and is considering an IPO. Financial Times.
Because OpenAI has so far been a private company, it has never had to publicly disclose its finances. The S-1 filing — the prospectus the company will eventually need to make public in an IPO — will be the first opportunity for outside investors to examine its books directly. That includes expenses, debt obligations and cash flow.
Is OpenAI stock worth investing in?
Whether OpenAI is worth investing in will largely depend on your risk tolerance. High-profile tech IPOs have had a mixed history: Uber, Lyft and Rivian, for example, all issued at huge valuations and delivered staggering initial returns to investors who bought at launch.
OpenAI also has an unusual business history. Started as a non-profit research lab, it converted to a for-profit structure to raise capital and recently completed the structural changes required by law to conduct a public offering.
A lawsuit filed by co-founder Elon Musk challenging that change was heard this year. A judge sided with OpenAI on technical grounds and the judge dismissed Musk’s claims, but Musk said he plans to file an appeal (all the while pursuing his massive SpaceX IPO).
The IS-1, if it is public, will be the most important document for investors to read before making any decision. Until then, the company’s $852 billion valuation is mostly just a number — not a measure of what the company is worth to shareholders.
How to invest in OpenAI before its IPO
Retail investors cannot directly buy the company’s stock at this time because it is still private. But there are several ways to invest in OpenAI indirectly.
Microsoft is a clear example. The software giant has invested heavily in OpenAI and built its expertise into products such as Azure, Bing and Copilot. Nvidia has also benefited from increased demand because companies like OpenAI rely on its chips to train and run AI models at scale.
Investors can gain exposure through ETFs that hold large positions in AI-focused companies, including large technology firms linked to the growth of AI manufacturing infrastructure.
Some private market platforms occasionally offer access to pre-IPO OpenAI shares, although those opportunities are usually limited to accredited investors (individuals or institutions that meet certain income or wealth requirements set by financial regulators) and usually come with a small investment and increased risk.
