ChatGPT maker OpenAI could lose $5bn in 2024, report

Another round of funding may be needed to keep it afloat

ChatGPT maker OpenAI could lose $5 billion in 2024

Image:
ChatGPT maker OpenAI could lose $5 billion in 2024

OpenAI, the creator of ChatGPT, is facing a severe financial crunch.

According to a new report by The Information, the company could lose about $5 billion this year, raising concerns about its ability to sustain operations without fresh injections of capital.

While ChatGPT has become a substantial revenue generator for OpenAI, bringing in about $2 billion annually, and additional income (about $1 billion) is anticipated from LLM access fees, these earnings are insufficient to offset the company's massive expenses.

The primary culprit behind OpenAI's financial woes is the immense cost of developing and operating its AI models. Training and operating these models is estimated to consume about $7 billion in 2024, far eclipsing the company's revenue.

A significant part of this expenditure, nearly $4 billion, is being funnelled into Microsoft's Azure cloud platform to power the inference capabilities of ChatGPT.

Although OpenAI enjoys discounted rates of $1.30 per A100 server per hour, the rapid acceleration of OpenAI's AI research has stretched its resources to the limit.

The company is operating at near-full capacity, with the majority of its 350,000 servers dedicated to powering ChatGPT.

In addition to inference costs, OpenAI is investing heavily in training new AI models, with an estimated expenditure of $3 billion for 2024.

OpenAI is also grappling with escalating staffing expenses. The company's workforce has ballooned to 1,500 employees, tripling initial projections and adding another $1.5 billion to the annual costs in 2024, a significant increase from the previous year.

OpenAI had initially estimated workforce expenses of $500 million for 2023, aiming to double its staff to approximately 800 employees by year's end.

With median engineer salaries reaching $300,000 in base pay and $625,000 in stock-equivalent compensation, the talent acquisition costs are substantial.

Amidst the financial storm, OpenAI CEO Sam Altman remains steadfast in his pursuit of artificial general intelligence (AGI), the holy (or perhaps unholy) grail of AI research. In a recent address at Stanford University, Altman expressed his priority for the advancement of AI technology, saying he doesn't care about the costs as long as they can "figure out a way to pay the bills."

OpenAI has already raised over $11 billion through multiple funding rounds and boasts a valuation of $80 billion. However, the latest report suggests that the company may need to seek new investment within the next twelve months.

Although Microsoft is a major investor in OpenAI, the two companies maintain separate entities. The financial pressures on OpenAI could force Microsoft to re-evaluate its relationship with the AI research lab, potentially leading to a buyout.

The European Commission is currently examining Microsoft's $13 billion investment in OpenAI, to determine whether a review is necessary under the EU Merger Regulation.

The UK's Competition and Markets Authority (CMA) also announced a similar probe in December last year.