Why 2025 will be the Key year for OpenAI

Hey Everyone,

2025 will have to be the year that OpenAI reinvents itself. In a weird way, the AI systems of the future might be decided just next year, as GPT-5 is revealed and where OpenAI expects to nearly 4x its already sizeable revenue.

In the latest funding round by OpenAI, Microsoft's investment of $750 million that represents about 12% of the entire round. But Microsoft is the key pillar for OpenAI's entire existence.

OpenAI's rise to power and concentrated ownership is entirely a story of monopoly capitalism that's dominant today in Silicon Valley.

I’ve been waiting a long time for this, OpenAI has finally closed a $6.6 billion funding round with participation from the likes of Nvidia and Softbank. I believe Nvidia will be a winner of humanoid robotics and OpenAI will be involved. 2025 is shaping up to be so competitive, OpenAI even asked investors to avoid five AI startups, they are:

1. Anthorpic
2. xAI
3. SSI
4. Perplexity
5. and Glean

There aren't many Co-founders left at OpenAI in 2024.

Greg Brockman is on leave, who knows when or if he will be back. OpenAI needs to become something terribly other to survive.

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Commercial AGI might not turn out to mean what you think it means in 2024.

The push for AGI is going to get very expensive

1. Training big new generative AI models requires massive volumes of "compute" power from high-end chips (mostly Nvidia's) that run up gigantic energy bills.
2. Once a model is trained, operating an AI service like ChatGPT that's in heavy use by throngs of users also runs up high bills for computing power, data-center use and energy. OpenAI is spending nearly $4 billion to keep ChatGPT running, per The Information.
3. Most of that money is going back to Microsoft, which hosts OpenAI's infrastructure. Never forget in this story how tied to Microsoft they are. They aren't even a real independent company yet. Read more by Axios related.

Read more about AGI

Recently we’ve seen the likes of Aleph Alpha and Character.AI basically being priced out of building LLMs, and while Liquid’s LFMs are impressive, the duopoly of OpenAI and Anthropic should continue being pursued by Google, xAI and increasingly fewer and fewer rivals and/or competitors. What’s becoming increasingly clear, is that few will be able to keep up with the scale OpenAI will achieve even as a vastly different company than it started out about a decade ago.

OpenAI is a monstrosity of scale. It’s also born and necessitates a period of a great datacenter push, compute acceleration and the nascent maturation of AI chips. Not so long ago these were just Nvidia gaming GPUs, we sometimes forget.

The Mechanics of Scale

Whether you think they have a bad business model, or their exodus of talent hurts their chances, I think even the critics and evangelists are getting a lot of stuff wrong in 2024 about OpenAI and what they can achieve in the corporate life-cycle. Even by the early 2030s, the situation will look very different. What remains is an unprecedented funding round of $6.6 billion and a very wild valuation that values the company at $157 billion and hardcodes it among the Monopoly firms that Silicon Valley has manufactured as one of the most valuable private companies in the world.

There are National Security and economic reasons why OpenAI was enabled here for the U.S. in the competitiveness vs. China. It’s not normal for Microsoft to invest this much in one team, one catalytic product like ChatGPT and these LLMs that have changed civilization in mere months.

While Anthropic is a very real competitor to OpenAI which will challenge them in Enterprise AI, coding and human alignment - OpenAI have an incredible first-mover advantage, better AI product diversification than Google, and more investment from Microsoft than Anthropic has combined from Amazon and Google. In the next few years we could even witness Anthropic and xAI being priced out of how large LLMs are going to get and how intensive the AI supercomputers and how expensive LLMs of the future will be.

Anthropic CEO Dario Amodei says by 2027 AI models will cost up to $100 billion to train and will be "better than most humans at most things". His quote refers to $10 Bn in 2025 but maybe even $100 Bn. just two years later in 2027. So if you think OpenAI is asking for a lot of funding today, just watch what happens the next few years.

OpenAI's valuation over time is a trajectory that’s hard to fathom:

? July 2019 ~ $1 billion

?? April 2021 ~ $14 billion

? January 2023 ~ $29 billion

?? February 2024 ~ $86 billion

?? October 2024 ~ $157 billion

The Hard Closed Pivot

OpenAI needs to become a for-profit company in 2025 or 2026 for this to work out. The latest funding round are themselves contingent on becoming a for-profit company within two years, so by October, 2026.

One of the biggest believers is Thrive Capital. They went the extra mile in the round. Thrive Capital, which committed about $1.2 billion from a combination of its own fund and a special purpose vehicle for smaller investors, negotiated the option to invest another $1 billion next year at the same valuation if the AI firm hits a revenue goal.

True AGI could turn out to be a mirage and OpenAI’s Orion models could still turn out fine with an increased ability to charge Enterprise firms and Governments very high subscription fees for their usage. When you do the math of OpenAI’s growth trajectory in revenue, diversification of products, and ability to turn all that traffic ChatGPT is getting into Ad dollars, you really do have the makings of a winner. OpenAI’s fate was sealed the minute they partnered with Microsoft so deeply.

Even if all went wrong for OpenAI, they could still IPO around 2026 or 2027 and be fine. This is because how popular ChatGPT is and the extent of the Cloud credits and support they have received from Microsoft that have incredible incentizes commercially for them to make sure OpenAI does well. Whatever American corporations conceive of as AGI, we are going to likely see and experience in the next decade.

The increased value of this company is also reflective of their monopoly status in the space as the AI company to beat. If OpenAI does beat its competition, they won’t just be profitable soon, they will be extremely profitable. Earlier this year, OpenAI was valued at a reported $80 billion, up from $29 billion in 2023. Surprisingly their revenue has actually followed and I believe they can easily double their revenue in 2025 from 2024. If they have their way with things, they will 4x their revenue.

$6.6 billion in largest VC round ever

OpenAI has just landed the largest VC round ever and with all their internal drama, it must make it even more sweet. Their pivot to a for-profit company is based on survival. Currently the company’s for-profit wing is currently overseen by a nonprofit research body, and investor profits are capped at 100x.

Scale matters and OpenAI have some of the most powerful friends in Microsoft and Nvidia. Joshua Kushner's Thrive Capital led the round, and was joined by Microsoft, Nvidia, SoftBank, Khosla Ventures, Altimeter Capital, Fidelity, Tiger Global and MGX. The UAE is all in on OpenAI’s AI infrastructure needs as well. This sets the stage for the next level of civilization’s datacenters and semiconductor supply chains to meet the growing global demand.

The financial entanglement between companies like Microsoft, Nvidia, OpenAI and TSMC are mind-boggling and have major and big implications. Monopoly Capitalism is all about having the right friends, the right corporate partners. It’s not clear to me how Anthropic, xAI or even Google competes with OpenAI here. If OpenAI can deepen their partnership with Apple, it will serve them well.

Only OpenAI can lose $5 Billion and still be on track for a valid path to profitability in the coming half of a decade. When you have 11 million paying customers and a thriving API and Enterprise AI business, you are betting on scale, first-mover advantage and a myriad product-AI strategy. OpenAI’s future is not as crazy as it sounds when you analyze the business.

Read the full article here. It's called Countdown to AGI.