What could cause a tech giant like Microsoft to stumble? The answer lies in one of its most prominent ventures: OpenAI.

Microsoft & OpenAI

Rumors are swirling that OpenAI might face losses of up to $5 billion this year, according to The Information. If these predictions hold true, it could spell the end for ChatGPT as we know it.

In May 2023, OpenAI reported losses had doubled to $540 million due to the development of ChatGPT and new hires. Fast forward one year, and losses could be tenfold!

Things aren’t looking good, which is why there’s growing speculation about OpenAI’s potential bankruptcy.

Who Will Rescue OpenAI?

In a major development on August 30, 2024, news broke that a new fundraising round is on the horizon. This time, Apple, Nvidia, and Microsoft are coming together to provide financial support to OpenAI.

Microsoft, Apple, Nvidia invest in OpenAI

Source: Dexerto

OpenAI Can’t Afford to Fail

The biggest concern lies with Microsoft. They’ve invested a staggering $13 billion since 2019 and rely heavily on OpenAI’s technology for Copilot, Bing, and the Azure OpenAI Service.

If OpenAI fails, Microsoft could face significant disruption, impacting countless customers—a scenario no one wants to see.

This concern also extends to Nvidia, a key player in the AI revolution. Potentially why it is showing support to the ChatGPT Maker.

Is OpenAI Becoming a Burden for Investors?

The latest fundraising efforts highlight just how expensive it is to build, maintain, and improve large language models (LLMs). OpenAI faces fierce competition and high operational costs, raising concerns about its ability to attract and retain customers.

Microsoft and OpenAI Competitors

Source: Information is Beautiful

As a young company, OpenAI lacks the resources of giants like Google or Meta to sustain its loss-making operations. While Microsoft could potentially acquire OpenAI, doing so might not align with the OpenAI team’s vision—and could expose Microsoft to antitrust scrutiny.

Are Investors Headed for a Risky Gamble?

As a key investor and partner, Microsoft may need to double down on its commitment to OpenAI. From being OpenAI’s exclusive cloud provider to integrating OpenAI into Microsoft Copilot, Microsoft simply cannot afford to let OpenAI fail—the consequences would be too severe.

Microsoft and OpenAI partners

Source: CNET

Without a functioning Copilot, deals could shrink dramatically, and Azure’s revenue as an exclusive cloud provider could take a hit.

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A Silver Lining for Competitors Like Google?

If OpenAI or ChatGPT were to falter, it could create opportunities for competitors like Google, Meta, and Perplexity.

Google, despite some errors in their Gemini LLM during the annual I/O conference, remains one of the biggest players in this space. The rapid evolution of this technology means that even small setbacks won’t stop companies like Google from innovating and pushing forward.

Microsoft competitor, Google error

Source: The Verge

Conclusion

While the likelihood of OpenAI going bankrupt seems low—given that major stakeholders like Microsoft have too much at stake—the possibility can’t be ignored.

ChatGPT’s impact on the tech world is undeniable. If OpenAI were to collapse, it would be a day many in the tech community hope never comes.

Key Takeaways for Investors

  1. High-Risk, High-Reward: Investing in start-ups or young companies carries higher risks, especially when they’re burning through cash.
  2. Prepare for Fundraising: When companies raise funds, especially through equity, initial investors might need to invest more to avoid dilution of their holdings, which could impact their returns.
  3. Keep Reserves Ready: It’s wise to have additional reserves for such opportunities. For example, in 2020, Singapore Airlines, heavily impacted by COVID-19, raised funds through an equity rights issue, allowing existing shareholders to buy additional shares at a discount.If you were a shareholder, would you buy more? 🤔 Not buying means missing out on discounted shares that could boost your future dividends. But buying requires more capital upfront.
  4. Build Confidence and ease anxiety through GoodWhale Community! Join us weekly live on Wealth Pulse!