OpenAI is pursuing an aggressive expansion strategy with annual spending in the tens of billions of dollars, securing massive long-term contracts for computing power and hardware development.
This push aims to capitalize on the global demand for AI, even as the company continues to face significant financial losses.
OpenAI commits to billions in long-term infrastructure deals
In the past nine months, OpenAI has entered into several large-scale agreements that create financial obligations totaling hundreds of billions of dollars over the next decade.
These commitments include:
- A roughly $60 billion annual computing arrangement with Oracle.
- An $18 billion investment in a joint data center venture.
- A $10 billion allocation for the development of custom semiconductors.
- The development of a new mass-market hardware device.
These deals have had an immediate impact on the market, contributing to a combined market value increase of over $400 billion for partners Broadcom and Oracle in a single week.
Projected losses to continue until 2029 despite revenue growth
Despite its expansion, OpenAI continues to operate at a loss. The company projects $13 billion in revenue for the current year but anticipates that losses will continue for several more years. During an investor briefing, CEO Sam Altman stated that OpenAI expects to incur $44 billion in losses through 2029, the first year the startup projects it will be profitable.
Altman compared the current investment climate to the dot-com era, warning that “some AI startups and investors will get burned,” though he expressed confidence that OpenAI would not be one of them. To fund its growth, the company has raised approximately $50 billion from investors over the past year and recently renewed its partnership with Microsoft, which unlocked about $19 billion in previously committed funding by allowing OpenAI to restructure as a for-profit entity. The company has told investors it projects annual sales could reach $100 billion by 2028 and $200 billion by 2030.
The challenge of converting 700 million users to paying customers
A primary hurdle for OpenAI is monetizing its vast user base. ChatGPT now has over 700 million users, but most use the service for free. A survey by Menlo Ventures found that only about 3% of consumers pay for AI services.
Corporate adoption faces similar difficulties. A June report from McKinsey found that eight out of ten companies implementing AI reported no substantial increases in profits, often due to the complexities of integrating the technology into existing workflows and measuring its return on investment.
Varying predictions on AI’s economic impact
Experts offer widely different forecasts for AI’s broader economic effect. Microsoft CEO Satya Nadella has suggested AI could boost global GDP growth to 10% annually. In contrast, researchers at the Wharton School project a more modest 1.5% increase in productivity and GDP by 2035.
Industry observers acknowledge the high stakes. Dave Blundin, founder of venture capital firm Link Ventures, described AI as “the most transformative thing in human history” but cautioned that a financial shakeout is inevitable, where many over-invested companies could fail.
