The soaring value of OpenAI should give investors pause for thought.
- OpenAI’s latest share deal puts a valuation of $500bn on the company
- Investors have been expressing concern over valuations
- An MIT report said companies are yet to make money from AI
OpenAI became the world’s most valuable privately-owned company this week as its secondary share sale put a $500bn price tag on the AI giant. This puts it ahead of Elon Musk’s SpaceX and is a significant uplift on its $300bn valuation in March. It has also added to the nervousness around valuations for AI.
Former Baillie Gifford fund manager James Anderson has warned that the valuation of OpenAI echoes dotcom valuation excesses. He told the Financial Times: “I think one needs to be honest that those sudden increases [in valuation] that people were willing to place on OpenAI, Anthropic and the like were disconcerting…That scale of jump and the pace with which it happened did bother me.”
For him, it is a reason to be concerned about Nvidia, which took a $100bn stake in OpenAI in September. The two groups agreed to work together to build data centres for AI, with OpenAI committing to buying millions of Nvidia’s AI processors as part of the deal. Anderson says there are still questions over how the huge data centres envisaged by OpenAI CEO Sam Altman will be financed or powered.
There is a drumbeat of concern around AI and whether the as-yet-uncertain rewards will ever compensate investors for the huge capital outlay. In an article for MoneyWeek, Bill Bonner points out that Meta, Amazon, Microsoft, Google and Tesla ploughed around half a trillion Dollars into AI in 2024 and 2025. A Goldman Sachs report suggested that Magnificent Seven would need to produce $600 billion in extra annual revenue to make sense of their investment.
So far, AI is not paying off. A report from the Massachusetts Institute of Technology in August found that 95% of companies that try AI aren’t making any money from it. They may not have sufficiently robust data to make the most of their investments. The report suggested it may take years for large companies to implement AI tools that generate revenue and save expenses.
This may change. A ‘killer app’ may emerge and change the landscape for AI, finally justifying this enormous capital spending boom. If it doesn’t, there may be problems. AI spending is propping up the US economy and a significant chunk of the US stock market. It is a lot resting on an unproven technology.
Even if it does prove worthy of the investment, valuations are still at the optimistic end. If natural growth investors such as Anderson are nervous, the rest of us should be too.
