OpenAI's massive operating costs could push it close to bankruptcy within 12 months

In brief: OpenAI, the firm that launched the generative AI revolution with the release of ChatGPT, burns through billions of dollars per year on its technology and staffing costs. The company is spending so much money that some analysts believe it could be on the verge on bankruptcy in just 12 months.

ChatGPT reached 100 million users in February 2023, just a few months after its official launch in November. That made it the fastest growing app of all time until Threads arrived. The chatbot's proliferation into popular culture – as illustrated by the South Park episode – not to mention Microsoft's $13 billion investment into OpenAI suggests Sam Altman's company is financially stable.

But driving OpenAI's success is the vast amount of money the company spends. Just keeping ChatGPT running costs a massive $700,000 per day, and that amount is likely to increase in the future.

According to a report by The Information based on previously undisclosed financial data, OpenAI is on its way to spending $7 billion on its AI training models, while its staffing costs are $1.5 billion. The publication writes that the company could lose $5 billion this year, and unless it raises more capital, may run out of cash in 12 months.

SCOOP: OpenAI may lose $5B this year & may run out of cash in 12 months, unless they raise more $, per analysis @theinformation.

Investors should ask: What is their moat? Unique tech? What is their route in profitability when Meta is giving away similar tech for free? Do they… pic.twitter.com/i5EkvEFEQd

– Gary Marcus (@GaryMarcus) July 24, 2024

This isn't the first report to suggest OpenAI could be facing financial problems. The Economic Times wrote last year that it could face bankruptcy over the high costs associated with training its AI models.

OpenAI generates up to $2 billion from ChatGPT and around $1 billion from LLM access fees, but these are said to barely cover its operational costs.

Sam Altman: I don't care if we burn $50 billion a year, we're building AGI and it's going to be worth it pic.twitter.com/zgC2cz3CxU

– Tsarathustra (@tsarnick) May 2, 2024

Something else looming over OpenAI's business is the increasing number of industry analysts who say that generative AI is a bubble that will burst within the next 12 months.

Some investors are already questioning how long Nvidia can continue to its massive growth levels that have propelled it to the third-most-valuable company in the world. The hype around generative AI doesn't seem to be slowing down, despite inherent issues around its inability to bring returns on investments, hallucinations, and the need for more data centers due to its massive power consumption.