OpenAI is the company behind ChatGPT, and unless you have been entirely cut off from the world for the last year or so, you know exactly what that is. The revolutionary artificial intelligence (AI) – powered chatbot has regularly appeared on front pages and newsfeeds worldwide, and investors are wondering how to buy OpenAI stock…
ChatGPT is a natural language processing tool that allows you to converse with a computer-based persona in an almost human-like fashion.
Beyond conversation, you can ask questions and get answers. ChatGPT can produce essays, articles, and papers, write code, and perform many other functions that are either valuable or potentially catastrophic, depending on your perspective.
Update: on Sept 27, 2023, TechCrunch reported that OpenAI is in discussions to sell shares at a price that would boost the Company’s valuation from $29 billion to between $80 and $90 billion. The same article claims that OpenAI expects to deliver $1 billion in revenue in 2023.
Is ChatGPT just a useful tool, or is it the predecessor to Skynet? We can’t answer that, but we can look at the investment potential of OpenAI, the company behind ChatGPT.
Let’s do it.
|OpenAI: Fast Facts|
|Key Competitors||Stability AI, Google, Baidu|
|CEO||Sam Altman, co-founder|
|Current Valuation||$29 billion*|
|Projected IPO Date||Unknown|
*Estimated by Fortune.
What Is OpenAI?
OpenAI was founded in 2015 by a group of investors that included Peter Thiel, Elon Musk, and current CEO Sam Altman, who pledged a total of $1 billion to the project. The initial intent was for OpenAI to be a non-profit research institution that would share its patents and knowledge publicly.
That goal quickly ran up against an obstacle. AI research is extremely expensive, and venture capital firms will not fund a non-profit. $1 billion is a lot of money, but in that field, it burns fast.
There are several stories about what happened next. CEO Sam Altman claims that Musk offered to take over the company in 2018, citing fears that OpenAI was falling behind Google and other potential competitors. Altman and the other founders refused, and Musk walked away, taking promised additional funding with him.
As a result, OpenAI changed its structure in 2019, adopting a for-profit model that allowed VC investment. The parent company, OpenAI Inc, remains a non-profit with a for-profit subsidiary called OpenAI Limited Partnership.
The new firm quickly attracted attention from investors, notably Microsoft, which has poured $13 billion into OpenAI. The OpenAI – Microsoft relationship works in several ways.
- Microsoft uses OpenAI’s GPT-4 to power its Bing chatbot and is integrating the product into Word, Excel, and the Azure cloud computing platform…
- Microsoft is developing and deploying specialized supercomputing systems to support OpenAI research.
- Microsoft Azure supplies all of OpenAI’s extensive cloud computing needs.
Musk has since dissociated himself from OpenAI, accusing the company of being “effectively controlled by Microsoft”. Musk has reportedly explored forming a new AI research lab, claiming that it’s developing “woke AI” and signing a letter demanding a pause in AI development.
OpenAI’s research into applications for machine learning and artificial intelligence has crystallized into several discrete products.
- GPT-4 is OpenAI’s flagship product. It can follow complex instructions in natural language, solve problems, and complete creative and technical writing tasks.
- Dall-E can create original, realistic images combining specified concepts, attributes, and styles from a text description.
- Whisper can transcribe speech into text and translate major languages into English.
- GitHub Copilot, developed with GitHub, assists coders using several integrated development environments by providing coding suggestions based on natural language prompts.
Pricing is based on a token system that allows users to pay for the amount of computing power they use. Complex and highly detailed tasks are more expensive, simple tasks less so.
What Do We Know About OpenAI’s Financials?
Open AI is a private company and is not required to file public reports on its business, revenues, and earnings. Some estimates are available.
- Fortune magazine estimates 2022 revenues at approximately $35 million.
- Reuters reports that the company expects $200 million in revenue in 2023 and $1 billion in 2024.
If the company can achieve those results, 2023 growth would be 471% and 2024 growth would be 400%.
No figures are available for debt or expenses, though analysts agree that the company is currently operating at a loss. This is not unusual for early-stage tech companies with high R&D expenditures.
One report suggests that Chat GPT alone spends $100,000 daily on cloud computing alone.
OpenAI has raised $12 billion over seven funding rounds, according to Dealroom.co. The most recent funding round was in January 2023 and left the company valued at an estimated $29 billion.
|Aug 12, 2013||Elon Musk, Greg Brockman, Reid Hoffman, Jessica Livingston, Peter Thiel, Amazon Web Services, Infosys, Sam Altman||N/A||Unverified|
|August 2016||Y Combinator||$120k||Seed|
|March 2019||Khosla Ventures||N/A||Seed|
|July 2019||Microsoft, Khosla Ventures||$1.0b||Late VC|
|Jan 2021||Tiger Global, Andreessen Horowitz, Bedrock||N/A||Secondary|
|Jan 2022||Matthew Brown Companies||N/A||Secondary|
|Jan 2023||Microsoft||$10 billion||Late VC|
There is currently no indication that OpenAI is planning an IPO. No prospectus has been filed, and management statements do not suggest that they are considering an offering. The commitment from Microsoft indicates that there’s no immediate need for operating cash.
How Can I Buy OpenAI Stock?
OpenAI is a privately held company, and its stock does not currently trade on any public exchange. You will not be able to buy OpenAI stock through a conventional broker until the Company has its IPO.
It is possible to buy shares in pre-IPO companies through private share marketplaces. These marketplaces acquire shares or broker shares being sold by early investors or by employees who have received shares as part of their compensation.
This is not a sure thing. Shares in any given company may not be available at any given time, and there may be restrictions on who can buy private company shares. If you’re convinced that a company has a bright future, it’s still worth a try as long as you have fully considered the risks of pre-IPO investing.
As of June 2022, the pre-IPO market presents a unique opportunity for investors with a long time horizon and cash that they are willing to place in a high-risk investment (all pre-IPO investments have to be considered high-risk).
Today’s flat IPO market has led to a radical drop in demand for pre-IPO shares. Investors are reluctant to buy shares that may remain illiquid until the IPO market improves. Significant numbers of employees in companies that have postponed IPOs are looking to offload shares. That increased supply and lack of demand point to increased availability and more accessible pricing for pre-IPO shares.
Pre-IPO Secondary Markets
These marketplaces often impose investor qualifications, and there is no guarantee or assurance that they will have available shares in any given pre-IPO company.
- Forge Global merged with Sharespost in 2020. The combined company is now the world’s largest marketplace for private company shares. Investors must make a minimum purchase of $100,000 worth of shares. The minimum may be higher for some companies. Investors may need to meet qualification requirements.
- EquityZen acquires shares from early investors or from employees who have received stock as part of their compensation. They work with companies to assure that transactions will be recognized and sell the shares to investors who meet the revised SEC “accredited investor” criteria. There’s a minimum investment of $10,000, which may be higher for some companies.
- Nasdaq Private Market provides access to private-company shares for investors who meet the SEC’s accredited investor criteria.
- EquityBee is a private marketplace that allows investors to fund employee stock options in return for a share in the proceeds of an eventual sale.
Most pre-IPO transactions must be approved by the issuing company, Beware of unknown platforms offering shares. They may not be approved or legally tradeable.
⚠️ There are substantial risks in pre-IPO investing. An IPO may not take place as expected, and if it doesn’t, there may be no market for your shares. Learn more about pre-IPO investing.
📚 Review this guide to how to buy pre-IPO stock before you consider a pre-IPO purchase of OpenAI stock!
Invest in the IPO
If pre-IPO shares are unavailable or the requirements are too strict, investing in the IPO may be a better option. Many IPOs allocate limited numbers of shares to major brokers, and if your broker has a share allotment, you may be able to buy at the IPO. You may still need to meet the qualifying requirements.
You’ll have to tell your broker how many shares you’d like to buy, and there’s no guarantee that you’ll get that number or any allocation at all.
Several major brokers provide IPO investing access for clients. Different brokers have different requirements.
- Charles Schwab requires a history of 36 trades or an account balance of at least $100,000 for IPO participation.
- E*Trade has no account balance or trading history requirements for IPO participation. You may have to pass a questionnaire provided by the IPO underwriters.
- Fidelity allows IPO participation for clients who meet a minimum household asset requirement or are members of their Private and Premium client groups.
- TD Ameritrade allows IPO participation if they are part of the selling group. Participants must have a minimum account balance of $250,000 or have made 30 trades in the last calendar year.
Buying at the IPO has one major advantage over a pre-IPO purchase. At least you know that after the IPO, there will be a public market for your shares. You may not be able to take immediate advantage of that market, though. IPO share purchases typically come with a 30 or 60-day lockup period.
Invest After the IPO
If you’re convinced that OpenAI will be a good long-term investment, the simplest way to buy the stock is simply to wait until the IPO concludes. You can then buy through your regular broker with no restrictions or requirements. You’ll be able to sell the stock at any time you like.
You will not get the low per-share price that you’d get from a pre-IPO or even IPO investment, but you’ll face substantially less risk. You’ll also get a chance to see how the market responds to the IPO before you pull the trigger.
If the stock rises straight after the IPO, your entry price will be substantially inflated, but that is by no means guaranteed. If you intend to hold the stock for an extended period, the difference will likely be minimal.
Are There Any Concerns About OpenAI?
Any pre-IPO investment involves substantial risk. There is never any assurance that the company will go public or that there will ever be a liquid market for the shares.
In addition, there are specific concerns about OpenAI.
- Competition. OpenAI jumped out to an early lead in the race to bring AI to commercial products, but other companies, some of them large and very well funded. There is no assurance that OpenAI can maintain its lead.
- Controversy. OpenAI products have met with a mixed reception. Prominent figures, including OpenAI founder Elon Musk, have called for a pause on AI development. It’s not clear how the regulatory environment for AI will develop.
- Financing. OpenAI has a high burn rate, and continued financing from Microsoft is not assured. If it appears that OpenAI is losing its competitive edge, it may not be possible to attract sufficient financing.
- Structure. OpenAI is structured as a non-profit company with a capped for-profit subsidiary. This is unusual and may pose challenges if the company goes public.
- Market environment. The current market is trending strongly away from growth tech companies, and it is not possible to predict when or if that will change.
You should review all of these and other risk factors before you try to invest in OpenAI.
OpenAI is getting enormous attention. the company and its products are getting daily media coverage. That coverage isn’t all positive, but at a certain stage in a company’s development, all publicity is good publicity.
That high profile has many investors wondering how to buy OpenAI stock. The company is appealing on many levels: it dominates a booming tech field, and revenue growth estimates are spectacular.
That doesn’t make it a sure thing, and as always, investors need to be skeptical and remain acutely aware of the risks.
OpenAI is a privately held company involved in artificial intelligence (AI) research and the development of commercial products based on AI technology. It’s products include the well-known Chat GPT natural language processing platform.
OpenAI is a leader in the rapidly expanding field of artificial intelligence. Its products are widely known and highly controversial, generating extensive media coverage. Elon Musk was an early investor, also generating media attention, and Microsoft has invested billions in the Company. Revenue growth is believed to be extremely high.
OpenAI is a privately held company. Its stock does not trade on any public exchange. Shares may be available on pre-IPO marketplaces like ForgeGlobal, EquityZen, and EquityBee. Pre-IPO investing involves numerous risks, and investors may have to meet rigorous qualifications.