OpenAI Is Spending Billions To Stay Ahead In AI—But JPMorgan Warns This 'Vibe Spending' Could Push Investors To Their Limit

Benzinga

ChatGPT-parent OpenAI may be leading the AI arms race, but its spending habits are raising eyebrows on Wall Street.

Transcript

00:00All right, let's go ahead really quick. I want to talk about OpenAI. We'll do this ahead of T3 here.

00:05OpenAI is spending billions to stay ahead in AI, but JPMorgan warns this is, quote,

00:10vibe spending. That's the first time I've heard that term before, vibe spending,

00:14could push investors to their limit. In a rare note covering a private company on Friday,

00:21JPMorgan Chase analysts Brenda Duverse and Lula Sheena cautioned that OpenAI's aggressive spending

00:28on talent and our research and development, what they've dubbed vibe spending, could test

00:33investors' patience. According to the note, OpenAI is expected to burn $46 billion over the next four

00:39years, while the company has raised $57 billion in just two and a half years. The analyst said

00:44profitability may not arrive until 2029. Investor expectations will be tested. Now, before we go

00:52through the rest of this, I do want to highlight that there is another stock that we all know about

00:57that have very, very similar back and forth throughout its maturity, and that stock is

01:04Amazon. There was a period where the bull versus bear case is, yeah, Amazon's great. They sell

01:10everything, but can they make money? And there were people on the short side of that. There were

01:14people on the long side of that. Well, you folks know the result of that. The TLDR there is that

01:18Amazon just decided, you know what, we're going to turn on the profit jets, shut everybody up,

01:22and the stock is one of the best performing stocks of all time. I mean, how many articles

01:28have you seen where if you put $1,000 in Amazon back in the late 90s, you'd also be getting married

01:34in Venice for $50 million? I mean, it's just the amount of gains that some of these companies that

01:39actually hit over the long term have are incredible. And I think that there's going to be

01:44something similar here with AI. Just my own gut feeling on that. One major cost driver is retaining

01:52top AI talent. Meta Platform's new super intelligence lab has already poached several researchers for

02:00OpenAI, reportedly offering compensation well over $100 million. But if they need a good prompter and

02:06they want to pay me $100 million, call me, Mark. Seven of Meta's first 10 hires came directly from

02:12OpenAI. Still, JP Morgan sees major upside. The firm said OpenAI has a strong first mover

02:18advantage with its app surpassing 500 million weekly average users this spring. More than 75%

02:25of AI app downloads globally in markets where it competes. The bank also called India as a key

02:31growth market where OpenAI is already overtaking Alphabet and Alphabet's Google. Additionally,

02:39OpenAI's $6.5 billion acquisition of Joni Ives hardware startup could create a hardware software

02:46flywheel driving revenue through devices and more profitable subscriptions. That'll be interesting

02:51to see if that happens. This marks the first time JP Morgan has analyzed a private tech firm like OpenAI

02:57underscoring the company's growing influence. The other thing I think we can take away from that is that

03:03the writing's on the wall here about AI. And JP Morgan says, you know, we better try and make as good of a

03:09name for us as we can. Maybe we'll start looking at some of these private companies. They're likely

03:14going to either one day become public or somehow interact with the public markets. This is a craze

03:21that is just more than a handful of companies. So it looks like, again, JP Morgan probably making the

03:26right decision in this case. However, the note also questions whether OpenAI's lead is sustainable.

03:33Having the, quote, best AI model, end quote, is not a robust moat, the analysts warned, noting that

03:40model performance is converging across competitors. Meanwhile, on Monday, it was reported that six

03:46months after the White House debut, the $500 million Stargate project, a joint AI infrastructure

03:51venture between OpenAI and SoftBank has stalled. Despite promises of $100 billion in immediate

03:59investment, it has yet to secure a major data center deal and is now focusing on a smaller

04:05facility in Ohio. As per the report, disagreements over structure, control, and strategy between OpenAI

04:11and SoftBank have led to delays and scaled back ambitions with leadership tensions between Sam

04:17Altman and Masi Yosha-san, excuse me, slowing progress. So we'll see where OpenAI, what ends up

04:26happening to OpenAI here. I think this is interesting. I think this is just more confirmation

04:31that this AI thing that we're in, whether you think it's a bubble or a craze or a theme or whatever,

04:36it's got a lot of legs. Even if it does end up crashing, if you will, or pulling back substantially,

04:41there's going to be a lot of legs prior to that happening, I suspect.

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