The $157B OpenAI Valuation Bear Case

The OpenAI Bear Case – With a 2024 revenue run rate of $3.7 billion, OpenAI is currently valued at a staggering 42x multiple—quite the premium, even for what is a trillion-dollar market.

While OpenAI may be a leader today, its valuation feels detached from financial and operational fundamentals. Here's why:

1️⃣ OpenAI lacks a durable technical moat. While it may currently have the best developer ecosystem and APIs, this advantage is fleeting.

2️⃣ OpenAI’s significant infrastructure spending suggests it is keeping pace with, rather than outpacing, a rapidly commoditizing market. Token pricing for GPT-4 has dropped 98% since last year.

This is a pricing race to the bottom—one that rarely paves the path to profitability.

3️⃣ Competition is amplified by open-source and big tech players like Meta and Google. OpenAI, ironically not open-source, now faces rival models that outperform it in specific use cases and distribution channels.

Meta’s Llama 3, for example, reaches 1.1 billion users across platforms like WhatsApp, Instagram, and Facebook, compared to ChatGPT’s 23% adoption among U.S. adults.

By embedding AI natively into their vast ecosystems, Meta and Google threaten OpenAI’s standalone model, even with Apple partnerships.

4️⃣ Finally, leadership instability, to put it lightly, adds to concerns. OpenAI’s high turnover—eight of its eleven co-founders, including CTO Mira Murati and Chief Scientist Ilya Sutskever, have departed to launch competitors.

AI is in its dawn, and like MySpace in social media's early days, OpenAI’s valuation risks overhyping potential—a cautionary tale for emerging industries.

So, what do you think? At $157 billion, is OpenAI overvalued or undervalued?