OpenAI Misses Expectations - Should Tech Investors Worry?
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Open AI Jitters on Motley Fool's Hidden Gems Investing Podcast. Welcome to Mindful Hidden Gems Investing. I'm Tyler Crowe, and with my longtime colleagues and Fool contributors, Lou Whiteman and Matt Frankel. Earnings are kicking up. MAG7 have not reported yet, so we're going to take a quick pause to not talk about MAG7 earnings, although that's probably going to be on later shows this week. Instead, we want to start today talking about OpenAI and some struggles that were released in the Wall Street Journal. We're going to talk General Motors' earnings, as well as hitting a mailbag question that we got earlier in the week. But like I said at the top, we're going to start with OpenAI. There was a Wall Street Journal article that came out either last night or this morning that was reporting that OpenAI isn't meeting some of its user revenue goals, and it's making all that spending and compute power that we've been talking about for the past several weeks, months, even a couple of years, it's getting harder to swallow.
And there's been some knock-on effects on the market as well. Shares of companies with close ties to OpenAI are down on the news, thinking companies like Oracle and CoreWeave. Now, guys, I'm going to ask you, Lou, Matt, I'm going to ask you guys your thoughts on this in a minute. But this is what stood out to me, is that CEO Sam Altman is trying to move towards an IPO somewhat aggressively. But the company raised $122 billion less than a month ago. And I find it odd that a company that has raised so much money recently is already preparing an IPO for what I would assume is more funding. I thought that's what IPOs are for. There's a bunch of other angles I'm sure we can take here. You guys all have your own takes, but let's start with this.
Are companies that have hitched their wagon to open AI, like the Oracles, like the Corweaves of World, in a little bit of stress or trouble here based on what was said in this Wall Street Journal report? Matt, let's start with you.
Nobody has been more skeptical about OpenAI's longer-term revenue projections, all these circular deals we're seeing among these AI companies. No one's been more skeptical about all this than me. Maybe you. Management has said $280 billion of revenue by 2030. That's more than Nvidia has by a mile.
What recent challenges is OpenAI facing?
But take this report with a big grain of salt. The report said that OpenAI missed its internal growth projections, which have been aggressive. It didn't specify by how much it missed. As Tyler mentioned, with a recent $122 billion raise and an upcoming IPO, the company shouldn't have much of a problem fulfilling at least its near-term contractual obligations. On a similar note, though, I feel like Oracle's investors are already very skeptical about OpenAI's ability to pay for what it's agreed to pay already over the long term, even before today's downward movement. Oracle was down 50% since that surge after the OpenAI deal was announced in September, and a big reason why has to be investor skepticism over the deal's feasibility.
Yeah. I don't know who's been more skeptical, Matt or Tyler, who's the most skeptical, but it feels like it's hard to find someone other than Sam Altman who hasn't been skeptical about OpenAI's grand pronouncements. I guess maybe, though, the C-suites at Oracle and CoreWeave would be the exceptions, the ones that weren't. Thing is, you know, These are long-term projections in a Wild West market, a market that still hasn't formed. Two years ago, when OpenAI was the bell of the ball, was riding high, had we even heard of Anthropic? No. In theory, I don't know why that can't happen again. I'm not saying it will, but I don't think first-mover advantage here really matters. I'm not sure that even if OpenAI isn't on a winning streak today, that really can be extrapolated into the future.
My question is, how does any of this make sense, guys? Who's going to make money here? Part of the reason OpenAI put out outrageous revenue assumptions is they have to offset outrageous spending needs.
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