When you’ve ever used the buzzy generative AI instrument, ChatGPT then you might have needed to purchase inventory within the mum or dad firm, OpenAI. OpenAI is a personal firm, so you possibly can’t purchase OpenAI inventory straight. However, Microsoft (Nasdaq: MSFT) owns a significant stake in OpenAI, which implies you will get publicity to OpenAI by shopping for Microsoft inventory. Let’s look at just a few of the professionals and cons of this technique to see if it is sensible for you.

When you’re not occupied with shopping for Microsoft then don’t fear, there are many methods to profit from the AI megatrend.

OpenAI Inventory: What You Have to Know

As a personal firm, OpenAI shouldn’t be obligated to inform the general public something about its enterprise. This implies it’s onerous to search out out info like what number of customers ChatGPT has or how a lot cash OpenAI makes. However, there are just a few bits of information that OpenAI has made public:

 

$2 billion in income: In line with 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 doubtless fluctuates continuously.

 

900% progress price: In line with 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 among the most capital-intensive startups on the 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 totally different genAI merchandise in whole. This contains AI-based merchandise for textual content, photographs, 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 really making a lot cash. ChatGPT makes cash in two days:

 

Subscription Income: OpenAI makes use of a “freemium” mannequin. Which means 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 30 days. Sacra estimates that ChatGPT Plus income hit $100 million yearly shortly after launching.

 

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

 

Once more, the specifics for many of OpenAI’s funds aren’t publicly obtainable for the reason that firm is personal. However, OpenAI works with a number of the world’s greatest corporations, like Microsoft. So, it’s protected to imagine that OpenAI is doing fairly properly 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 greatest beneficiaries. Moreover, Microsoft isn’t only a monetary accomplice with OpenAI. The 2 corporations have a particular relationship since Microsoft is quickly deploying AI throughout its vary of merchandise. On its final earnings name, CEO Satya Nadella acknowledged, “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 good points throughout each sector.”

 

Which means AI is at the moment being carried out 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 frontrunner in AI, it’s protected to imagine that Microsoft will likely be working carefully with OpenAI to make sure it has probably the most up-to-date tech for its merchandise. When you’re , you possibly can learn extra about OpenAI and Microsoft’s distinctive partnership.

 

Moreover, Microsoft additionally not too long ago partnered with Nvidia (Nasdaq: NVDA) to develop Nvidia’s tech throughout Azure, Azure AI companies, Microsoft Cloth, and Microsoft 365. This can be a bit unrelated to OpenAI. However, it is going to 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 just a few dangers to notice if you happen to plan on shopping for Microsoft as a approach of investing in OpenAI inventory.

Downsides to Shopping for OpenAI Inventory

Microsoft is an enormous firm. In 2023, it pulled in a whopping $211.92 billion in income and $72.36 billion in web revenue. So, Microsoft investing $10 billion into OpenAI may sound like a giant funding (and it’s…for an everyday 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 affect 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 outdoors of OpenAI. For instance, Microsoft might report declining progress for its Azure cloud line of enterprise, which might damage its inventory value. When you personal Microsoft, this may damage you too – regardless 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 Microsoft.

 

I hope that you simply’ve discovered this text helpful relating to studying about how one can spend money on OpenAI inventory. When you’re occupied with studying extra, please subscribe beneath to get alerted of recent articles from InvestmentU.

Learn our article on certainly one of OpenAI’s greatest opponents Anthropic right here.

 

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