OpenAI Prices Wars Could Cripple IPO

OpenAI believes its prices for enterprise customers are too high. This is particularly true when the management at these companies compares its prices to archrival Anthropic. According to The Wall Street Journal, OpenAI will cut its prices sharply, endangering both its profits and overall revenue. That, in turn, threatens its IPO valuation.

OpenAI’s valuation is pegged at about $850 billion, based on its last funding round in March. At this point, OpenAI is forecast to have an annualized revenue run rate of about $25 billion this year, up from $2 billion in 2023. The amount it spends is just as important. According to Tech Insider, “An Investing.com analysis citing research firm Sacra pegs OpenAI’s projected 2026 cash burn at approximately $27 billion – a figure that diverges sharply from even its blistering revenue curve.” The forecast for when OpenAI will make money varies by source. The most frequently cited number is 2029 or 2030. On the way to that number, OpenAI could spend $121 billion for computing power in 2028 alone.

The cost of using OpenAI and Anthropic is usually based on “tokens.” According to Deloitte, “A token is the fundamental unit of AI work. It’s a small chunk of data: characters of text, pieces of an image, or a slice of audio that an AI model processes.” Prices charged to individuals are also affected by this use.

The obvious question is how much the token price will drop and whether it will increase adoption by both enterprises and individuals. OpenAI’s largest concern is enterprise customers, where it appears to have lost significant ground to Anthropic.

The financial risk to OpenAI can be paired with the fact that more and more companies are investing in AI to improve operations, but…. While some of the long-term AI effects of this may be beneficial, the cost is so high that management at some companies has said there is a need to cut back paid AI use because it is too early to get tangible financial returns from these investments.

It may become a race to the bottom. This could eventually hit the entire industry. If so, it could also change how these companies are valued, and it is unlikely to be for the better, or at least not for investors.