Should you’ve ever used the buzzy generative AI instrument, ChatGPT then you’ll have needed to purchase inventory within the mother or father firm, OpenAI. OpenAI is a personal firm, so you may’t purchase OpenAI inventory instantly. However, Microsoft (Nasdaq: MSFT) owns a serious stake in OpenAI, which implies you may 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 smart for you.

Should you’re not keen on 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 data 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 keeping 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: Traders have valued OpenAI at $80 billion. Nevertheless, this valuation possible fluctuates ceaselessly.

 

900% progress price: In keeping 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 earth, 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, photos, audio, and video.

How Does OpenAI Make Cash?

Earlier than shopping for OpenAI inventory, it’s essential to learn the way 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. Because of this 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 monthly. Sacra estimates that ChatGPT Plus income hit $100 million yearly shortly after launching.

 

Token System: OpenAI additionally licenses the usage of its API for firms that wish to construct instruments on prime 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, firms that use tons of AI computing energy can pay OpenAI greater than firms that simply use a bit of.

 

Once more, the specifics for many of OpenAI’s funds should not publicly obtainable for the reason that firm is personal. However, OpenAI works with a number of the world’s largest firms, like Microsoft. So, it’s protected to imagine that OpenAI is doing fairly nicely 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 enhance 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 can 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 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 beneficial properties throughout each sector.”

 

Because of this 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 frontrunner in AI, it’s protected to imagine that Microsoft can be working intently with OpenAI to make sure it has essentially the most up-to-date tech for its merchandise. Should you’re , you may learn extra about OpenAI and Microsoft’s distinctive partnership.

 

Moreover, Microsoft additionally not too long ago partnered with Nvidia (Nasdaq: NVDA) to broaden Nvidia’s tech throughout Azure, Azure AI providers, Microsoft Material, and Microsoft 365. It is a bit unrelated to OpenAI. However, it’ll 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 when 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 internet revenue. So, Microsoft investing $10 billion into OpenAI would possibly 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 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 worth. Should you personal Microsoft, this is able to damage you too – although it has nothing to do with OpenAI. These are the opposite components to concentrate on if you plan on shopping for OpenAI inventory by means of Microsoft.

 

I hope that you just’ve discovered this text helpful in terms of studying about how one can spend money on OpenAI inventory. Should you’re keen on studying extra, please subscribe under to get alerted of latest articles from InvestmentU.

Learn our article on one in every of OpenAI’s largest rivals 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.