According to a latest report, OpenAI, a leader in artificial intelligence, could face a huge loss of up to $5 billion in 2024, while possibly depleting its cash reserves within 12 months. The news has sparked widespread concern about the AI industry’s cost control and profitability models.
Cost analysis
According to The Information, OpenAI plans to spend nearly $4 billion this year on Microsoft servers running ChatGPT’s inference workloads. The company currently has about 350,000 servers with Nvidia A100 chips, 290,000 of which are dedicated to ChatGPT’s inference tasks. These hardware devices run almost 24/7, demonstrating the company’s massive investment in AI inference capabilities.
In addition to inference costs, OpenAI’s spending on AI model training should not be underestimated. According to financial documents, the cost for ChatGPT and new model training could be as high as $3 billion this year. This figure reflects the company’s aggressive strategy on AI research and development.
Financial concessions and labor costs
Although OpenAI received a favorable rate from Microsoft Azure, where Microsoft charges only $1.30 per hour for A100 servers, well below market rates, this offer did not fully offset OpenAI’s huge expenses. At the same time, labor costs have become a major factor in the company’s financial strain as it has expanded its workforce.
Currently, OpenAI has about 1,500 employees and expects labor costs to reach $1.5 billion. And OpenAI initially projected labor costs of $500 million in 2023, while doubling its workforce to about 800 by the end of that year.
This far outstrips the spending of competitors, such as Amazon-backed Anthropic, which is projected to spend $2.7 billion in 2024 at a rate of capital consumption.
Revenue and funding gap
While OpenAI is able to bring in about $2 billion in annual revenue through products such as ChatGPT and is expected to generate nearly $1 billion in additional revenue by providing access to large-scale language models (LLMs), this revenue falls short compared to the huge expenses.
Estimates suggest that OpenAI’s total annual revenue could be between $3.5 billion and $4.5 billion, leaving a funding gap of up to $5 billion compared to the expected $7 billion cost.
Market outlook and response strategies
Despite financial pressures, the market remains optimistic about OpenAI’s long-term growth potential. The young consumer base in regions such as Southeast Asia, reliance on digital finance, and government support for technology innovation provide a wide market space for AI companies such as OpenAI.
However, OpenAI needs to find a balance between controlling costs and expanding revenues. There is widespread concern in the industry about how the company will adapt its business model to cope with current funding pressures and remain competitive in the future of AI.
OpenAI’s high expenses could force the company to close another round of funding within 12 months to bolster its balance sheet, the report said. According to Tracxn, OpenAI has closed seven rounds of funding, raising more than $11 billion – the most recent being a private placement with ARK Investment Management in April for an undisclosed amount.
