Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
OpenAI may be worth $500bn, some investors think. Just a few days ago, it was worth $300bn. Sam Altman’s company might in fact be the most valuable private technology company in the world; its ChatGPT app is changing the way humans work, learn and maybe even how they speak. But how to sanity-check the value of something not quite like anything?
Traditional methods, such as applying a multiple to revenue or profit, have their place even for such an untraditional business. OpenAI expects to hit $20bn of recurring revenue by the end of this year — a slightly slippery metric favoured by software companies — suggesting investors in broad strokes believe it’s worth 25 times sales. That multiple roughly matches Elon Musk’s SpaceX, according to Musk’s revenue projections.
But compared with what came before, both companies are wild outliers. When Amazon and Apple hit the half-trillion dollar threshold, each was already making more than $150bn of revenue. Facebook owner Meta was making more than $40bn when it joined the $500bn club. Chipmaker Nvidia hit that level with a mere $17bn of sales in 2021, but unlike OpenAI, was already generously profitable.
In terms of its growth, OpenAI is legitimately a rarity. Revenue is on course to quadruple this year, a rate almost unheard of for a large company. Google surpassed it in 2002, as did Tesla in 2013. But both were generating sales a fraction of the size OpenAI says it commands now. ChatGPT is closing in on 1bn weekly users, less than three years after its launch. It took Facebook eight years to reach 1bn monthly users.
Perhaps, then, sizing up OpenAI requires a more creative approach. One way might be to imagine the value it could conceivably steal from others. After all, ChatGPT is vying for a chunk of Google’s search market, Microsoft’s software empire, and Apple’s hold over the smart device market. To be worth $500bn, OpenAI needs to skim off just 5 per cent of their combined market value of $9.4tn. That doesn’t sound such a stretch.
There might even be a simpler way to think about OpenAI — albeit one that might infuriate fundamentally minded investors. That’s simply to ask whether the company can retain its competitive advantage and join the pantheon of world-changing tech giants — and if so, whether that in itself guarantees a certain level of value.
Think back to 2018, when Apple first hit $1tn, a valuation that then seemed outlandish. Now, all of the so-called Magnificent 7 stocks have market capitalisations of at least that; Nvidia is now well above $4tn. If OpenAI is going to be spoken about in the same breath, and it seems pretty certain that it will, Altman’s $500bn valuation may prove a stepping stone to a 13-digit price tag yet to come — fundamentals be damned.
[email protected]