OpenAI nears $100 billion funding round at $850 billion valuation

OpenAI is reportedly nearing a deal to raise more than $100 billion, according to a report by Bloomberg. The funding round could push the company’s valuation to exceed $850 billion. This potential valuation highlights the scale of capital flowing into the sector, even as the company behind ChatGPT continues to navigate operational costs.

The funding push comes as the company burns through cash while working to reach profitability. To generate new revenue streams and offset these costs, OpenAI has started testing ads in ChatGPT for free users. This advertising trial is a gamble for the company, as it could generate new revenue or, conversely, risk alienating free users who might leave the platform. The company’s ability to balance user experience with monetization will be watched by competitors and partners.

Investors appear receptive to the company’s direction, valuing OpenAI $20 billion higher than the $830 billion valuation that was initially expected. According to Bloomberg’s source, the company’s pre-money value—which refers to the valuation of the company before it receives this new round of investment—will remain at $730 billion. This means the expected increase in total valuation is driven by the influx of new capital rather than a change in the baseline valuation of the existing business. The $730 billion pre-money figure serves as the foundation for the negotiations as the company seeks to secure the new capital.

The funding process is structured to close in multiple stages. The initial tranches, or portions of the larger funding amount, are reportedly coming from technology companies. The breakdown of these potential investments includes:

• Amazon is currently in talks to invest up to $50 billion.
• SoftBank is gearing up for a $30 billion investment.
• Nvidia is close to investing $20 billion.

Microsoft is also reportedly participating in these initial portions of the round. Other classes of investors, including venture capital firms and sovereign wealth funds, are expected to close their investments at a later date. This staggered closing structure means that the total amount raised by OpenAI could potentially rise even higher once all parties finalize their agreements.

Why it matters

This deal underscores the capital requirements of the artificial intelligence race. As OpenAI burns through cash to maintain its operations, the company is experimenting with monetization strategies like ads in its free tier to work toward profitability.