OpenAI is reportedly in talks to hold a secondary sale that could raise its valuation to $500 billion. This has been reported by several publications, including SiliconAngle.
A secondary sale is a transaction in which existing shareholders of a company sell shares. The company itself does not receive any proceeds from the sale. According to CNBC, the proposed secondary sale is open to current and former employees.
It is unclear how many shares will be sold. OpenAI has organized several secondary sales in recent years. Reuters states that one of the first such deals was concluded around the same time that ChatGPT became available to the public in November 2022. That transaction valued OpenAI at $20 billion. That was less than a tenth of the $300 billion at which the company is currently estimated.
The fact that the ChatGPT developer’s next secondary sale could reportedly add $200 billion to its valuation may indicate investor optimism about GPT-5. In a post on X, OpenAI suggested it would announce the language model today.
Two early testers of GPT-5 told Reuters that they are impressed with the model’s scientific, programming, and mathematical capabilities. However, they noted that it will not bring as big an improvement in output quality as the jump from GPT-3 to GPT-4.
Development of GPT-5 was challenging
OpenAI reportedly faced several challenges during the development of GPT-5. Sources told Reuters that the company encountered a data wall, which likely means it struggled to obtain sufficient high-quality training data. In addition, the project is believed to have been hampered by hardware failures during training rounds.
Chief Executive Officer Sam Altman (photo) gave a preview of GPT-5 back in February. At the time, he suggested that the model could offer a simpler user experience than the company’s current algorithms. He also revealed that GPT-5 will be able to determine whether it needs to think for a long time or not based on the task it is given. OpenAI plans to integrate the LLM into both the free and paid versions of ChatGPT. Users with paid accounts will have access to a more powerful version of the model.
Significant revenue increase
According to CNBC, annual revenue rose from $10 billion in June to $13 billion last week. The developer of ChatGPT expects to reach the $20 billion mark by the end of this year. That rapid growth likely played a role in the $500 billion valuation that OpenAI is reportedly seeking with its secondary sale.
According to IEX, OpenAI is in early talks about the stock sale, which would allow both current and former employees to sell billions of dollars worth of shares. The source, who wishes to remain anonymous because the talks are private, reports that this would represent a significant increase from the current valuation of $300 billion.
OpenAI’s rapid growth in user numbers and revenue, as well as increasing competition for AI talent, are said to be behind this planned transaction. The company is said to now have around 700 million weekly active users for its ChatGPT products, a significant increase from 400 million users in February.
The talks about this share sale follow a major funding round led by Japan’s SoftBank Group, with the aim of raising $40 billion. SoftBank has until the end of the year to finance its $22.5 billion share, while the remaining part of the round has already been placed at a valuation of $300 billion.
Fierce competition between AI developers
IEX also reports that technology giants are aggressively competing to attract AI talent with highly attractive compensation packages. For example, Meta is investing billions in Scale AI to bring in CEO Alexandr Wang to lead a new superintelligence unit. Unlisted companies such as ByteDance, Databricks, and Ramp have also used private share sales to adjust valuations and reward long-term staff.
At least three other developers of large language models are currently in negotiations for new investments. Anthropic is reportedly seeking a multi-billion dollar funding round that could value the company at $170 billion, while Mistral AI SAS hopes to raise $1 billion. Cohere is also believed to be able to raise $500 million at a valuation of up to $6.5 billion.