Prediction: OpenAI Will Go Public, and This Will Be Its Valuation

OpenAI is not a publicly traded (yet). But with so many high-growth AI stocks seeing incredible valuations from the market, and the incredible amount of capital companies like OpenAI will undoubtedly need to raise to bring forward the best and most extensive large language models to market, it’s clear to many investors that an initial public offering (IPO) could be on the horizon. In fact, many experts have suggested this will likely be the case. 

24/7 Wall St. Key Points:

• OpenAI is among the leading private artificial intelligence companies many have speculated could well be on track for an initial public offering in short order.
• If the company does offer some of its shares for sale to the general public, here’s where I think its valuation will come in at.
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I’m going to take the over on the idea that OpenAI eventually goes public, due to the sheer amount of capital the company will need, and the likely reality that early employees and investors will eventually want to cash out on their stakes in this amazing company. Major investors in OpenAI, from Microsoft (NASDAQ:MSFT | MSFT Price Prediction) to a range of other venture capital firms and wealthy private individuals, could also get the benefit of added liquidity for their shares. It’s a real no-brainer in the view of many who follow this sector closely, and would be a move that would certainly make sense, given the current euphoria that’s built up around the AI trade.

For those who think, as I do, that OpenAI will eventually (and perhaps soon) be a publicly-traded company, here’s where I think its valuation will likely come in at over, say, the next year.

OpenAI’s Likely Valuation

SoftBank founder Masayoshi Son

October’s $6 billion private funding round, which was the largest venture capital deal in history, pegged OpenAI’s valuation at a whopping $157 billion. This funding round, which was preceded by a massive $13 billion investment from Microsoft, and a subsequent $1.5 billion tender offer from Softbank, show a valuation trajectory that’s off the charts for this particular AI company. Indeed, if OpenAI were a publicly-traded firm today, it would be the 57th-largest company in the S&P 500. That’s impressive, and certainly worth noting. 

However, I think that upon going public, this is a company that could see a much higher market capitalization. Investors are generally well-aware of the premium multiples many high-growth companies, particularly in the AI space, can garner in this environment. And while venture capital firms no doubt lined up to give OpenAI their money in previous funding rounds, added liquidity from millions of investors around the world could drive a much higher multiple.

Accordingly, if OpenAI were to go public next year, I wouldn’t be surprised to see a valuation north of $200 billion on opening day, given the sheer amount of demand for companies like OpenAI that are leaders in the AI revolution. Yes, there’s certainly competition in this space. But the IPO market has somewhat reopened, and there remains trillions of dollars of investor capital sitting on the sidelines in money market funds that may be waiting for an opportunity like this. That’s just the reality we’re living in today.

Recent OpenAI Developments

A newspaper with the headline “volatility ahead”

In October, OpenAI secured a record $6.6 billion funding round led by Thrive Capital, with investors including Altimeter Capital, Microsoft, Nvidia, and others participating in this deal. Again, I think this funding round, which valued the company at $157 billion, is indicative of the incredible interest long-term investors are likely to have with such a company. And given the quality of the current investor base, there’s no doubt in my mind that a broadening of OpenAI’s current investor base wouldn’t be anything but positive for the company moving forward.

OpenAI has been urged by some investors in this funding round, such as Altimeter Capital’s Brad Gerstner, to go public. His view is that antiquated views around a given company hitting specific arbitrary revenue levels is outdated, and this is a company with some of the most impressive potential in the sector. Additionally, he brought up a great point that there’s a heightened need for transparency and scrutiny from public markets with such companies. Going public will certainly add these elements into the equation, while also adding plenty of liquidity for Gerstner and other early investors.

We’ll have to see whether an IPO is indeed on the horizon, but if we do see one, I wouldn’t be surprised to see this IPO be among the most over-subscribed in history.