Their revenue in the entire first half per the article was $4.3B, even if we assume it was backloaded in Q2 that’s a -500% profit margin. I’m very excited to review their S-1.
Like, for every dollar you give them they spend $5 to deliver the product. They’re selling $10 bills for $2. They seem to have taken the joke about making up losses with scale pretty seriously.
What Theo claims on YouTube is that each model they make is profitable over its lifetime and the weird numbers for the company are because they keep training more models, having to pay up front to buy a bunch of future profit each time basically
The problem is that OpenAI will have to keep doing this basically indefinitely, as otherwise open-source commodity models will catch up with them and offer an equivalent product at a much lower cost. If the company is reliant on having to keep paying more than it's making on its current model to train new models, I don't see how it can ever become a sustainable business.
Not even just open source models - other commercial LLM models as well. All of the big LLM companies (Google, Anthropic, OpenAI) are basically ocked in a cold war of having to continuously outspend the other providers or risk becoming irrelevant.
The big question for me is if people will ever be happy with a model that is "good enough", and can thus be optimized and run profitably over time without faling behind. Time will tell!
The bigger question is if you have a model that is "good enough" that is open source if there is a market for APIs delivering said models that able to justify the funding.
This claim that if they stopped training new models wouldn’t the old ones become stale as things are updated? Not sure how quickly that would occur but it does seem likely as the world moves fast
If your amortised fixed costs plus your variable costs are greater than your revenue, that’s called making a loss. It’s like a shipping company saying the cost of delivery covers the cost of their staff and fuel, so they’d be profitable if only they didn’t need to pay for all these ships.
It's not that long IMO, it's been 2 years since Nvidia stock took off, and at that point OpenAI was valued between $29B and $86B (compared to $500B today), so I'd say we've entered bubbly territory around then.
Personally Im not surprised. Im bearish on the capabilities of LLMs given the amount invested, but, I also believe theres about 2 years left (of minimal progress relative to money invested) to go before things finally start to crater.
Uber was in the red for like 10 years, and burned 31B, and complaints of it popping were constant. But here we are with it still going and now profitable.
this is bad reporting. microsoft's share of openai's cumulative loss over the lifetime of their investment is 11.5b. the microsoft share of openai's loss in the quarter was 4.1b, implying an 8b loss for openai itself assuming microsoft recognized 49% of openai losses per their ownership stake exiting the quarter. there may be some one time items that skew this, if not this is ain't good
Contrast this with Google who made $100Bn profit last quarter and on the side has Gemini with 650MAU and does 7B tokens/minute. It makes it clear that neither MS nor OAI know what they are doing.
Also most of it is from ads, not from their AI or cloud products. I wonder when OpenAI will start to serve ads as much as Google does, they certainly have people's attention a lot of times throughout the day looking at how people around me use their services.
I find it funny that people think OAI can enter the ad business and just compete easily with Google, given the years Google has had investing in research etc to build the behemoth it is today in the market for online advertising.
By the time OAI even figures it out, they will have run out of funding. All they can do now is prop up usage numbers to signal to investors that their market position is durable.
It's hard to say with Google as you don't know how much of the revenue was increased by having the AI stuff. The CEO sounds upbeat:
>We are seeing AI now driving real business results across the company.
We delivered our first ever $100 billion quarter. Five years ago, our quarterly revenue was at $50 billion. Our revenue number has doubled since then, and we are firmly in the generative AI era.
They also do a lot of different stuff in AI, like they make their own TPUs and "Anthropic recently shared plans to access up to 1 million TPUs". So some of the business is a bit Nvidia like.
Their revenue in the entire first half per the article was $4.3B, even if we assume it was backloaded in Q2 that’s a -500% profit margin. I’m very excited to review their S-1.
Like, for every dollar you give them they spend $5 to deliver the product. They’re selling $10 bills for $2. They seem to have taken the joke about making up losses with scale pretty seriously.
> Like, for every dollar you give them they spend $5 to deliver the product.
Well, it would be useful before concluding this to see a breakdown between OpEx, CapEx, and R&D.
What Theo claims on YouTube is that each model they make is profitable over its lifetime and the weird numbers for the company are because they keep training more models, having to pay up front to buy a bunch of future profit each time basically
The problem is that OpenAI will have to keep doing this basically indefinitely, as otherwise open-source commodity models will catch up with them and offer an equivalent product at a much lower cost. If the company is reliant on having to keep paying more than it's making on its current model to train new models, I don't see how it can ever become a sustainable business.
Not even just open source models - other commercial LLM models as well. All of the big LLM companies (Google, Anthropic, OpenAI) are basically ocked in a cold war of having to continuously outspend the other providers or risk becoming irrelevant.
The big question for me is if people will ever be happy with a model that is "good enough", and can thus be optimized and run profitably over time without faling behind. Time will tell!
The bigger question is if you have a model that is "good enough" that is open source if there is a market for APIs delivering said models that able to justify the funding.
This claim that if they stopped training new models wouldn’t the old ones become stale as things are updated? Not sure how quickly that would occur but it does seem likely as the world moves fast
Future profit? Isn't that what every company in the red claims?
Ofcourse in the 21st century none of this actually matters people just want to buy low sell high.
If your amortised fixed costs plus your variable costs are greater than your revenue, that’s called making a loss. It’s like a shipping company saying the cost of delivery covers the cost of their staff and fuel, so they’d be profitable if only they didn’t need to pay for all these ships.
I would think that logic only works if opensource models like llama don't catch up? In other words the models don't become a commodity.
How long can this go on for?
Forever, tech has become a never ending sequence of bubbles and hype cycles.
The duration of this hype-cycle/bubble has exceeded my expectations.
It's not that long IMO, it's been 2 years since Nvidia stock took off, and at that point OpenAI was valued between $29B and $86B (compared to $500B today), so I'd say we've entered bubbly territory around then.
Follow cryptocurrency for a closer understanding of inebriated capital trying to chase the new thing.
Personally Im not surprised. Im bearish on the capabilities of LLMs given the amount invested, but, I also believe theres about 2 years left (of minimal progress relative to money invested) to go before things finally start to crater.
As long as investors are willing to pay for it.
I can’t help but feel their push to go public is driven by their having milked the private markets dry.
Yes if their existing investors were seeing stuff that indicated they would create escape velocity, they would queue up to purchase more stock.
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Uber was in the red for like 10 years, and burned 31B, and complaints of it popping were constant. But here we are with it still going and now profitable.
this is bad reporting. microsoft's share of openai's cumulative loss over the lifetime of their investment is 11.5b. the microsoft share of openai's loss in the quarter was 4.1b, implying an 8b loss for openai itself assuming microsoft recognized 49% of openai losses per their ownership stake exiting the quarter. there may be some one time items that skew this, if not this is ain't good
The big winners of AI will be hyperscalers. They got the compute, storage, customers, scale, ecosystems, 100s of billion to deploy.
OpenAI may implode and absorbed by MSFT. Anthropic may implode and be absorbed by Amazon.
Nvidia may not have the same demand of chips once the datacenters have been built out, but the hyperscalers are reaaaaaaally huge.
May as well say US economy depends on being the planet’s datacenter.
Contrast this with Google who made $100Bn profit last quarter and on the side has Gemini with 650MAU and does 7B tokens/minute. It makes it clear that neither MS nor OAI know what they are doing.
Alphabet (Google) made $102.35 billion in revenue last quarter, not $100bn in profit.
Also most of it is from ads, not from their AI or cloud products. I wonder when OpenAI will start to serve ads as much as Google does, they certainly have people's attention a lot of times throughout the day looking at how people around me use their services.
I find it funny that people think OAI can enter the ad business and just compete easily with Google, given the years Google has had investing in research etc to build the behemoth it is today in the market for online advertising.
By the time OAI even figures it out, they will have run out of funding. All they can do now is prop up usage numbers to signal to investors that their market position is durable.
Not a single AI company is cash flow positive, not even Google's AI part of the business.
It's unclear if they even can be, since commodity models you can use for free catch up to them pretty close to yearly.
It's hard to say with Google as you don't know how much of the revenue was increased by having the AI stuff. The CEO sounds upbeat:
>We are seeing AI now driving real business results across the company. We delivered our first ever $100 billion quarter. Five years ago, our quarterly revenue was at $50 billion. Our revenue number has doubled since then, and we are firmly in the generative AI era.
They also do a lot of different stuff in AI, like they make their own TPUs and "Anthropic recently shared plans to access up to 1 million TPUs". So some of the business is a bit Nvidia like.