In the event you’ve ever used the buzzy generative AI instrument, ChatGPT then you might have wished to purchase inventory within the guardian firm, OpenAI. OpenAI is a non-public firm, so you’ll be able to’t purchase OpenAI inventory straight. However, Microsoft (Nasdaq: MSFT) owns a significant stake in OpenAI, which suggests you will get publicity to OpenAI by shopping for Microsoft inventory. Let’s look at a number of of the professionals and cons of this technique to see if it is smart for you.

In the event you’re not excited by shopping for Microsoft then don’t fear, there are many methods to profit from the AI megatrend.

OpenAI Inventory: What You Must Know

As a non-public firm, OpenAI just isn’t obligated to inform the general public something about its enterprise. This implies it’s arduous to seek out out data like what number of customers ChatGPT has or how a lot cash OpenAI makes. However, there are a number of bits of information that OpenAI has made public:

 

$2 billion in income: Based on Reuters, OpenAI hit $2 billion in income in December 2023. The generative AI startup is aiming to double this determine in 2024.

 

$80 billion: Buyers have valued OpenAI at $80 billion. Nevertheless, this valuation probably fluctuates often.

 

900% progress price: Based on Sacra, OpenAI posted an annual recurring income of $2 billion in 2023. This was up from $36 million in 2021, which represents a progress price of 900%. Not too shabby in any respect.

 

Massively Costly: OpenAI is without doubt one of the most capital-intensive startups on this planet, which means it prices some huge cash to run the corporate. It’s estimated that ChatGPT alone prices roughly $700,000 per day to function, due to excessive prices for GPU hours and {hardware}.

 

24 AI Merchandise: OpenAI is most well-known for ChatGPT. However, it has roughly two dozen completely different genAI merchandise in complete. This contains AI-based merchandise for textual content, pictures, audio, and video.

How Does OpenAI Make Cash?

Earlier than shopping for OpenAI inventory, it’s vital to find out how the corporate makes cash. This allows you to know whether or not or not the corporate is rising. Moreover, some startups can obtain an immense valuation with out truly making a lot cash. ChatGPT makes cash in two days:

 

Subscription Income: OpenAI makes use of a “freemium” mannequin. Which means that it has a free model for many of its instruments, together with a barely better-paid model. For instance, ChatGPT is free. However, ChatGPT Plus, begins at $20 per thirty days. Sacra estimates that ChatGPT Plus income hit $100 million yearly shortly after launching.

 

Token System: OpenAI additionally licenses using its API for firms that want to construct instruments on high of its AI fashions. To do that, OpenAI has created a usage-based token system. Firms pay OpenAI relying on how a lot AI computing energy they use. So, firms that use tons of AI computing energy pays OpenAI greater than firms that simply use a bit of.

 

Once more, the specifics for many of OpenAI’s funds will not be publicly out there because the firm is non-public. However, OpenAI works with a number of the world’s largest firms, like Microsoft. So, it’s secure to imagine that OpenAI is doing fairly effectively financially. Talking of Microsoft, let’s look at how one can purchase OpenAI inventory.

Investing in OpenAI Inventory

Until you’re an accredited investor, the one possible way to purchase OpenAI inventory is to purchase Microsoft. Microsoft has made two strategic investments in OpenAI, so its inventory might improve if OpenAI’s valuation surges. Right here’s a fast historical past of Microsoft’s investments in OpenAI:

 

2019: Microsoft invested $1 billion in OpenAI roughly three years earlier than it launched ChatGPT.

 

January 2023: Microsoft invested one other $10 billion in OpenAI. This was roughly a 3rd of OpenAI’s market worth on the time.

 

If OpenAI turns into the world’s subsequent trillion-dollar firm then Microsoft will likely be one of many largest beneficiaries. Moreover, Microsoft isn’t only a monetary associate with OpenAI. The 2 firms have a particular relationship since Microsoft is quickly deploying AI throughout its vary of merchandise. On its final earnings name, CEO Satya Nadella said, “We’ve moved from speaking about AI to making use of AI at scale. By infusing AI throughout each layer of our tech stack, we’re successful new clients and serving to drive new advantages and productiveness features throughout each sector.”

 

Which means that AI is at present being applied in merchandise like Bing, Workplace 365, Azure, GitHub, and even Microsoft’s gaming verticals like xBox and Activision Blizzard. I’m making a little bit of an assumption right here. However, as a pacesetter in AI, it’s secure to imagine that Microsoft will likely be working intently with OpenAI to make sure it has probably the most up-to-date tech for its merchandise. In the event you’re , you’ll be able to learn extra about OpenAI and Microsoft’s distinctive partnership.

 

Moreover, Microsoft additionally lately partnered with Nvidia (Nasdaq: NVDA) to develop Nvidia’s tech throughout Azure, Azure AI providers, Microsoft Cloth, and Microsoft 365. It is a bit unrelated to OpenAI. However, it would assist safe Microsoft’s place as a number one AI firm, as Nvidia is a goliath within the AI arms race.

 

With all that mentioned, there are a number of dangers to notice in case you plan on shopping for Microsoft as a manner of investing in OpenAI inventory.

Downsides to Shopping for OpenAI Inventory

Microsoft is a large firm. In 2023, it pulled in a whopping $211.92 billion in income and $72.36 billion in web earnings. So, Microsoft investing $10 billion into OpenAI may sound like a giant funding (and it’s…for a daily firm). However, for Microsoft, $10 billion is a drop within the bucket in comparison with how a lot cash the corporate brings in.

 

For OpenAI to have an outsized impression on Microsoft’s inventory, OpenAI’s market capitalization must surge tremendously. Even when OpenAI grew from an $80 billion valuation to $100 billion, it wouldn’t actually transfer the needle for Microsoft. Particularly since Microsoft solely owns a fraction of the corporate.

 

Moreover, shopping for Microsoft’s inventory opens you as much as different dangers exterior of OpenAI. For instance, Microsoft might report declining progress for its Azure cloud line of enterprise, which might damage its inventory worth. In the event you personal Microsoft, this is able to damage you too – despite the fact that it has nothing to do with OpenAI. These are the opposite components to concentrate on once you plan on shopping for OpenAI inventory by means of Microsoft.

 

I hope that you simply’ve discovered this text precious in the case of studying about how one can spend money on OpenAI inventory. In the event you’re excited by studying extra, please subscribe beneath to get alerted of recent articles from InvestmentU.

Learn our article on considered one of OpenAI’s largest rivals Anthropic right here.

 

Disclaimer: This text is for normal informational and academic functions solely. It shouldn’t be construed as monetary recommendation because the writer, Ted Stavetski, just isn’t a monetary advisor.