Will OpenAI go bankrupt by burning $700,000 a day in 2024?

As a well-known pioneer of the Fourth Industrial Revolution and a leader in the AI wave, OpenAI has been the most attention-grabbing unicorn in the technology and investment circles in the past six months. It has even single-handedly driven the frenzy in technology stocks, shifting the narrative of the US stock market from recession to bull market.

However, the monetization prospects of AI technology still face significant challenges. OpenAI currently relies on the support of investors such as Microsoft to ensure the normal operation of the company. According to Indian media Analytics India Magazine, OpenAI has incurred a loss of $540 million in the entire year of 2022, and the loss will continue to expand with the progress of subsequent developments such as GPT-5.

The magazine believes that OpenAI may go bankrupt by the end of 2024.

Indian Media: If OpenAI continues to burn money at the current rate, the company will go bankrupt by the end of next year

Analytics India states in the article that the daily operating cost of OpenAI alone amounts to as much as $700,000. In May of this year, there were reports that OpenAI's annual loss doubled compared to 2021, reaching $540 million.

In addition, the number of users of its products has been continuously declining, posing more challenges to the monetization prospects of the company. Since May, the number of OpenAI users has declined for two consecutive months. According to SimilarWeb data, the user base in July 2023 decreased by 12% compared to June, from 1.7 billion users to 1.5 billion users.

Analytics India also mentioned that open-source models in the current market have taken away many potential customers of OpenAI. For example, Meta's Llama 2 performs similarly to OpenAI and can meet the business needs of many companies. Compared to the expensive paid LLM of OpenAI, open-source models are obviously more attractive to organizations with limited budgets.

The magazine also pointed out that due to the shortage of GPUs in the market, OpenAI, backed by Microsoft Azure, is also facing a shortage of computing power. As GPT-5 development also needs to be taken into account, the computing power allocated to ordinary users for daily use of OpenAI may already be insufficient. Therefore, in the past few months, there has been a rumor circulating on social media that "GPT has become dumber."

Analytics India also noted that X.ai, led by Musk, will become a strong competitor to OpenAI. The magazine believes that Musk's concept of establishing TruthGPT without political bias can attract many users, and Musk has already placed an order for 10,000 NVIDIA GPUs.

The Trends Brought by AI are Clear

It is worth noting that, despite the claim that "OpenAI will go bankrupt by the end of 2024," Analytics India has not provided any solid evidence to support this conclusion.

According to OpenAI's own predictions, its revenue will reach $200 million in 2023 and $1 billion in 2024. More importantly, the company has received investments of over $10 billion from Microsoft.

If we follow the calculations of this Indian media outlet:

1. OpenAI's daily operating cost is $700,000 = $21 million per month = $250 million per year.**
2. OpenAI has received funding of over $11 billion from Microsoft.**
3. Even if OpenAI doesn't make a single penny, it can still operate for 40 years solely based on Microsoft's investment of $250 million per year.
4. Even if we consider the increased computational power required for GPT-5 and multiply OpenAI's operating cost by 10 - $7 million per day and $2.5 billion per year - it would still take four years to exhaust the funds already raised.

No matter how you calculate it, it is impossible to conclude that "OpenAI will go bankrupt next year."

More importantly, the frequent actions of global technology companies in the past six months have confirmed that AI is not just a hype, but possibly the most important industrial revolution that has the potential to completely change the way we work.

Guo Mingji, an analyst at TF International Securities, tweeted on August 14th that the claim of OpenAI's bankruptcy is baseless, and AI/AIGC is a clear trend. However, the industry's changes will create new winners and losers. It is worth noting that if AI/AIGC fails to create sustainable and profitable business models, investments in the industry may slow down. One indicator to watch is Microsoft's capital expenditure outlook for AI/AIGC in the next two quarters and the profitability of related businesses.