Open AI is Broke…And Wall Street is Preparing for Crash

[00:00:00]Open AI is running out of money and Wall Street is preparing for Open AI to crash, but they want you to pay the price for that because Open AI spent the last couple of years spending hundreds of billions of dollars. Now we realize that Open AI probably will never be profitable and somebody has to pay the price for that. And they want to use your retirement accounts to fund Open AI. Someone leaked Open AI's financials.

[00:00:26]Open AI's financials leaked. They're not bad, but they're not great. However, if you pay a very close attention, they are in a really big trouble and it seems like nobody can help them except you. So if you pull out the data and you look at their financial statements, here is what you see. The total revenue for the last year has been $13 billion while the cost of revenue has been $7.5 billion. If you focus solely on these two numbers, Open AI is actually operationally profitable. Of course, after you exclude R&D, sales, and marketing and a few other costs, suddenly you realize that if Open AI will continue on this path, then it is certainly going to become profitable because the only question right now is that how much it can actually scale that business. And from what we see is that everybody wants to use AI right now. The biggest number on this table is -$41.5 billion, but that number is simply a distraction because last year Open AI turned from a non-profit company into a for-profit company. So they incurred that cost.

[00:01:32]That is not the real money leaving the business, so we can just safely ignore that number. So based on these numbers, it seems like Open AI is actually doing not bad. Yes, they're not profitable yet, but they're about to become profitable. What I want you to pay attention is the $19.1 billion that you see from research and development.

[00:01:51]Here's the question. What exactly is that research and development? If you dig into the numbers, you'll realize that R&D is simply renting computer power from Microsoft. Microsoft has spent hundreds of billions of dollars buying computer power or Nvidia's GPUs because OpenAI cannot afford them. Now, OpenAI is paying Microsoft about $20 billion annually just to rent this computer power to be able to train the latest models. But, here is the biggest problem with that research and development. On one side, yes, they're using this computer power to train their AI. On the other side, they're also using that computer power to make it possible for you to use the latest ChatGPT models. So, the line between research and development and the cost of revenue is so blurred that you don't know for a fact how much exactly it is costing the company to offer these services. Imagine if we get rid of R&D right now. Will this revenue stay the same? Well, based on what we see, absolutely not. That $13 would quickly plummet or maybe the cost of revenue is going to substantially rise and you will realize that the business is not on a path to profitability. Now, here is the problem with this business strategy is that the more advanced the models get, the more expensive they become and the lower the margins get. And that's not how a tech business supposed to work.

[00:03:13]When you have a software business, your initial cost is really expensive because you have to build the infrastructure.

[00:03:19]Think of a business such as Facebook.

[00:03:21]Building the initial infrastructure was extremely expensive. So, the cost for the first 10 users of Facebook was enormously high. But, today, if Facebook want to add an extra user, it doesn't cost Facebook at all any money or whatsoever. The same thing applies to any other software business. But, in the case of ChatGPT or OpenAI, the more they advance, the more they build more advanced models, the higher are going to be the cost because the more GPUs they have to use and the lower their margins are going to be. So, if we look at this path and zoom out and look at the long-term projections, suddenly it seems like the more advanced ChatGPT is going to get, the more it's going to cost and the less profitable the business is going to be. And if it's not profitable today, then it seems like it is never going to become profitable. The best analogy that you can think about is that once the drug is developed, it should be profitable even without the new drugs.

[00:04:14]When a pharmaceutical company develops a new drug, yes, they will spend an enormous amount of money building or creating that drug. And now, even if they don't create any new drugs, they can keep selling this old drug for a profit. Yes, part of the money from sales of that drug will go into R&D so that you build new drugs, but even if you don't build the new drugs, these old drugs supposed to be profitable. But that's not the case with OpenAI. All of their previous models that they have spent so much money building, they can't actually sell them for a profit. They're not profitable at all. And if you look at the forecast of OpenAI, you will be blown away by these numbers. So, this year they're expecting to make about $30 billion in the best-case scenario, but the total spendings will be $55 billion.

[00:04:59]So, they're making a huge net loss.

[00:05:01]Looking further to the next year, that's about $45 to $55 billion, and the total spending will be almost $120 billion.

[00:05:12]And if you look at these numbers, you see that there isn't a single year that OpenAI is going to be profitable anytime soon. And if we go straight forward to 2030, for example, in the best-case scenario, the total realistic returns could be $180 billion, assuming that OpenAI is going to dominate the entire market and there aren't going to be serious competition.

[00:05:34]But if we're going to be honest with each other, then we know that there is a very serious competition from a traffic, then you have Google's Gemini, and then you have a bunch of other AIs. And AI is developing and moving so fast that you don't know what's about to happen by 2030. They might There might be a completely new company that might dominate the entire industry. But, let's assume for a moment that OpenAI will actually reach a total revenue of $180 billion.

[00:06:00]Not only it is going to make it one of the largest companies in the world because there aren't many businesses and companies, even in the stock market, that generate about $180 billion revenue. But, in that case, the total spending will be $241 billion. So, the business is very similar to Amazon's business. When you are Yes, you're incurring so much revenue, but you have much more costs. It's the exact same business that Walmart has.

[00:06:27]Yes, you have a lot of sales, you have a lot of revenue, but on the other side, you have so much expenses. But, in the case of ChatGPT and OpenAI, it's much worse because your expenses are significantly higher than your revenue.

[00:06:39]Most of the revenues are not going to come from the paid subscriptions because now OpenAI has already introduced ads, and that means that you're simply going to be the product.

[00:06:49]You will be using ChatGPT, and ChatGPT is going to sell your data to advertisers, and they will integrate more and more ads into ChatGPT. So, the more you use ChatGPT, the more ads they're going to sell. The second primary source of revenue is obviously enterprises because they have to integrate AI into themselves, and probably in 5 to 10 years, everything will be AI. Everything AI will be integrated absolutely into everything.

[00:07:14]Even in the best-case scenario, they will not be profitable in the next 5 years. And if you include the fact that we have Gemini completely for free, if you use Google right now, you go to Google and you see AI. That's it. You don't need anything else. But, let's say that you're not using Gemini. You're not using Google's AI. You can literally go to Chinese versions such as Deep Seek, and you can use them completely for free, and you don't have to pay a dime for using them. They're literally open-source, available for absolutely everybody. If you're a small business and you want to integrate AI into your business, you don't have to go and pay enterprise prices for ChatGPT because you can simply take Deep Seek. So, given these factors, I can't possibly imagine how the total revenue will actually go to $180 billion, but even in this case that you see that there is literally no path to profitability. So, here's the question.

[00:08:04]What exactly they want to do?

[00:08:06]After they invested so much money into OpenAI, of course, somebody has to pay the bill. The bill is coming and the bubble is bursting. So, they want to do the exact same thing by going public.

[00:08:16]Just like SpaceX went public, just share the cost and turned it into a meme stock. OpenAI expects to go public within the next year. Some people say that it will happen this September, others say that it will certainly happen before the end of the year. When you're going public, you can basically structure yourselves just like SpaceX did. You're not allowed to sell all of the stocks on the first day of trading.

[00:08:38]So, that is going to create a huge shortage of stocks in the stock market, which means that if you're successfully going to create so much hype around OpenAI, that means that you might be able to raise tens of billions of dollars. And if they successfully raise about $100 billion worth of revenue, then they're going to survive the next year as well. That means that there is going to be enough money to actually keep operating. But here's the question.

[00:09:02]Who do you think exactly is going to buy so much of OpenAI's stock when we know that there is no path to profitability at all in the next five to seven years?

[00:09:12]Well, that's exactly what they did with SpaceX.

[00:09:15]Companies such as Fidelity and BlackRock that literally manage 401(k)s for millions of Americans, they took that money because that money is invested in actively managed funds. Actively managed funds are being managed by Wall Street, so Wall Street basically takes that money and starts buying these IPOs, just like they did with SpaceX. So, if you spread $100 billion dollars millions of Americans, that is going to be a tiny small cost and most people are not going to feel it. So, we have taken successfully the AI bubble, instead of bursting it, we basically spread the cost across millions of Americans who never asked for it, but we also never asked them and Wall Street still ended up making billions of dollars in the process. But at least I don't want you to be dumb enough to get into the hype and buy the IPO and then the next moment find yourself that you have obliterated your savings and you lost so much money.

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