Don’t expect OpenAI to turn a profit anytime soon

• OpenAI is expected to turn a profit in 2029, according to a new report from The Information.
• Microsoft also appears to be on track to take a 20% cut of OpenAI’s revenue, according to the report.
• OpenAI is fresh off a historic $6.6 billion funding round.

Investors will likely wait a while before OpenAI starts turning a profit.

A new report from The Information, which analyzed the company’s financial documents, revealed that while OpenAI is burning less cash than previously thought, it’s still years away from turning a profit.

The report says the company doesn’t expect to become profitable until 2029, when revenue is expected to hit $100 billion. Between 2023 and 2028, OpenAI expects its losses to reach $44 billion.

However, a metric that OpenAI shares with investors — which excludes some expenses, such as training costs for large language models — estimates that the company will become profitable in 2026, according to The Information.

While the numbers are significantly higher than most startups, it’s not uncommon for companies running on expensive technology to show big losses early on.

“Developing advanced AI takes a lot of time and money, so OpenAI is expected to face high costs before it starts turning a profit,” Kate Leaman, chief market analyst at AvaTrade, told Business Insider.

Microsoft, which has poured about $13 billion into the company, is also set to benefit from its partnership with OpenAI more than previously thought. Documents reviewed by The Information suggest the tech giant will take a 20% cut of OpenAI’s revenue, higher than previously reported.

Leaman said Microsoft’s contribution to OpenAI in cloud services and infrastructure explained the high percentage of revenue.

“Partnering with Microsoft might mean that OpenAI earns less of each dollar of revenue, but it could help the business grow significantly in size, meaning the impact might not be as bad as originally anticipated,” he said. she said.

The news report comes just over a week after OpenAI closed the most valuable funding round in Silicon Valley history.

The company has raised $6.6 billion from a range of new and existing investors, valuing it at $157 billion. In addition to the new funding, OpenAI also received a $4 billion credit facility from a number of banks.

While it’s common practice for fast-growing companies to establish a line of credit, OpenAI’s search for more funding signals that its loss-making operations will become even more expensive.

The company’s flagship product, ChatGPT, is still free to use at a basic level, but is expensive to run and maintain due to the significant computing power required.

OpenAI is also planning major improvements to its flagship AI model. Over the summer, the company shared a the new five-level classification system to track its progress towards general artificial intelligence and released a new improved model that has some reasoning skills.

The company’s push to build a smarter model means it will have to pour even more money into training. According to The Information, OpenAI currently projects that its computational costs for model training could reach up to $9.5 billion per year in 2026.

This means that investors must be prepared to play the long game.

“Investors should look at the company’s long-term potential – if OpenAI stays ahead of the curve with its technology, it has the potential to be very profitable in the future,” Leaman said.

OpenAI representatives did not immediately respond to a request for comment from Business Insider outside normal business hours.