How Does OpenAI’s Price Tag Stack Up to Survivors of the Dotcom Bubble?

OpenAI’s latest fundraising round has made the ChatGPT maker one of the world’s most valuable startups, and an unusually costly investment from a historical perspective.

On Wednesday, Microsoft (MSFT)-backed OpenAI completed a $6.6 billion fundraising round that valued the nonprofit startup at the center of the Artificial Intelligence (AI) craze at more than $150 billion, nearly double its valuation just a few months ago. If OpenAI were a public company in the S&P 500, it would be among the index’s 70 largest components and have a market value roughly equivalent to that of AT&T (T) and Pfizer (PFE). 

But OpenAI, if it was a public company, wouldn’t be eligible for the S&P 500 because it’s never been profitable. Nor have many of its major competitors like Amazon (AMZN)-backed Anthropic, Elon Musk’s xAI, or Safe SuperIntelligence (SSI), the organization born out of the recent schism between OpenAI and its former chief scientist Ilya Sutskever. 

AI Startups Pricier Than Dotcom Bubble Darlings

The valuations of AI startups have skyrocketed this year as they’ve attracted billions of dollars in investment from tech giants and venture capital firms. Anthropic is in the midst of a fundraising round and is expected to be valued at as much as $40 billion. xAI has been valued at $24 billion and SSI is worth an estimated $5 billion just three months after its founding. 

These unprofitable firms trade at a high multiple. A Deutsche Bank analysis estimates Anthropic is likely to be valued at 50 times its full-year sales, while OpenAI is valued at almost 40x sales. At the height of the dotcom bubble, Microsoft’s and Oracle’s (ORCL) price-to-sales ratios peaked around 30.

Their valuations also dwarf those of America’s largest tech companies. Nvidia (NVDA), expected to book $90 billion in profit in the next year, trades at 30x annual sales. Apple (AAPL) and Microsoft, two of the most profitable companies in the world, trade at price-to-sales ratios in the low teens.

What Is OpenAI’s Path to Profit?

OpenAI was founded as a nonprofit organization with a for-profit arm through which investors can stake a claim to future profits. Last month, reports emerged that the company was planning to convert to a for-profit company, and its latest fundraising reportedly made the investments conditional on its completing that conversion in the next two years.

Even so, it could be a while before the company does turn a profit. OpenAI as a whole is expected to lose $5 billion this year, according to analyses by The New York Times and The Information. The number of monthly users of its chatbot ChatGPT, OpenAI’s main source of revenue, more than tripled between March and June of this year, and ChatGPT’s revenue is expected to quadruple to $2.7 billion this year. But those users come at a high cost—renting the servers to run ChatGPT will cost an estimated $4 billion this year.

Growing revenue will be vital to the profitability of OpenAI, and the company has set ambitious goals for itself. According to documents reviewed by the Times, the company expects to grow sales from nearly $4 billion this year to $11.6 billion in 2025. It’s targeting $100 billion in revenue in 2029, which would require a compound annual growth rate (CAGR) of more than 90% over the next five years. By comparison, analysts forecast Nvidia’s revenue will grow at a CAGR of 33% through 2026.