According to the Financial Times (FT), OpenAI (the inventor of Chat GPT) has raised another $8.3 billion in a massively over-subscribed funding round, including $2.8 billion from Dragoneer Investment Group, a San Francisco-based technology-focused fund. Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email [email protected] to buy additionLeading VCs that also participated included Founders Fund, Sequoia Capital, Andreessen Horowitz, Coatue Management, Altimeter Capital, D1 Capital Partners, Tiger Global and Thrive Capital, according to the people with knowledge of the deal.  The Chat GPT private company is now valued at $300 billion.

OpenAI’s annual recurring revenue has surged to $12bn, according to a person with knowledge of OpenAI’s finances, and the group is set to release its latest model, GPT-5, this month.  

OpenAI is in the midst of complex negotiations with Microsoft that will determine its corporate structure. Rewriting the terms of the pair’s current contract, which runs until 2030, is seen as a prerequisite to OpenAI simplifying its structure and eventually going public. The two companies have yet to agree on key issues such as how long Microsoft will have access to OpenAI’s intellectual property. Another sticking point is the future of an “AGI clause”, which allows OpenAI’s board to declare that the company has achieved a breakthrough in capability called “artificial general intelligence,” which would then end Microsoft’s access to new models.

An additional risk is the increasing competition from rivals such as Anthropic — which is itself in talks for a multibillion-dollar fundraising — and is also in a continuing legal battle with Elon Musk.  The FT also reported that Amazon is set to increase its already massive investment in Anthropic.

OpenAI CEO Sam Altman. The funding forms part of a round announced in March that values the ChatGPT maker at $300bn © Yuichi Yamazaki/AFP via Getty Images

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While AI is the transformative technology of this generation, comparisons are increasingly being made with the Dot-com bubble. 1999 saw such a speculative frenzy for anything with a ‘.com’ at the end that valuations and stock markets reached unrealistic and clearly unsustainable levels. When that speculative bubble burst, the global economy fell into an extended recession in 2001-2002.  As a result, analysts are now questioning the wisdom of the current AI speculative bubble and fearing dire consequences when it eventually bursts. Just as with the Dot-com bubble, AI revenues are nowhere near justifying AI company valuations, especially for private AI companies that are losing tons of money (see Open AI losses detailed below). 

Torsten Slok, Partner and Chief Economist at Apollo Global Management via ZERO HEDGE on X: “The difference between the IT bubble in the 1990s and the AI bubble today is that the top 10 companies in the S&P 500 today (including Nvidia, Microsoft, Amazon, Google, and Meta) are more overvalued than the IT companies were in the 1990s.”

AI private companies may take a lot longer to reach the lofty profit projections institutional investors have assumed.  Their reliance on projected future profits over current fundamentals is a dire warning sign to this author.  OpenAI, for example, faces significant losses and aggressive revenue targets to become profitable. OpenAI reported an estimated loss of $5 billion in 2024, despite generating $3.7 billion in revenue. The company is projected to lose $14 billion in 2026 while total projected losses from 2023 to 2028 are expected to reach $44 billion.

Other AI bubble data points (publicly traded stocks):

• The proportion of the S&P 500 represented by the 10 largest companies is significantly higher now (almost 40%) compared to 25% in 1999. This indicates a more concentrated market driven by a few large technology companies deeply involved in AI development and adoption.
• Investment in AI infrastructure has reportedly exceeded the spending on telecom and internet infrastructure during the dot-com boom and continues to grow, suggesting a potentially larger scale of investment in AI relative to the prior period.
• Some indices tracking AI stocks have demonstrated exceptionally high gains in a short period, potentially surpassing the rates of the dot-com era, suggesting a faster build-up in valuations.
• The leading hyperscalers, such as Amazon, Microsoft, Google, and Meta, are investing vast sums in AI infrastructure to capitalize on the burgeoning AI market. Forecasts suggest these companies will collectively spend $381 billion in 2025 on AI-ready infrastructure, a significant increase from an estimated $270 billion in 2024. 

Check out this YouTube video: “How AI Became the New Dot-Com Bubble”

References:

https://www.ft.com/content/76dd6aed-f60e-487b-be1b-e3ec92168c11

https://www.telecoms.com/ai/openai-funding-frenzy-inflates-the-ai-bubble-even-further

https://x.com/zerohedge/status/1945450061334216905

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