LONDON, Aug 7 (Reuters Breakingviews) - Investors throwing cash at artificial intelligence face a glaring risk: OpenAI. True, the ChatGPT maker’s breakneck growth offers plenty to get excited about, with annualized revenue on track to triple this year. But its potential sudden jump from a $300 billion valuation to $500 billion, as Reuters reported on Wednesday, implies immense faith in a still-immature business model. If that faith is tested, chatbot makers following in its wake will suffer.The firm led by Sam Altman ignited the AI frenzy when it launched ChatGPT in 2022. It is now expected to hit, 700 million weekly active users in August. Fewer than 10% actually pay for monthly subscription plans costing either $20 or $200, a person familiar with the matter told Breakingviews. The hope is that overall adoption grows so rapidly that this small slice covers the cost of responding to queries, which requires vast computational grunt. OpenAI also dominates, enterprise adoption, capturing 34% of U.S. businesses that pay for AI as of June, according to research firm Ramp. That outpaces rival Anthropic’s 10%, which is also seeking a new fundraising round at a $170 billion valuation, according to Bloomberg – nearly triple its last mark in March.Both are notching incredible sales growth. OpenAI’s annualized revenue is on track to hit $20 billion by year-end, according to Reuters, up from $5.5 billion last year Anthropic, buoyed by its model’s talent for coding, may hit $4 billion according to Bloomberg, up from $1 billion at the end of 2024, as reported by Reuters citing sources.Whether this justifies the funding frenzy is another matter. Assume the best-case scenario: that these wildly cash-burning businesses achieve a 27% free cash flow margin by 2030, in line with Alphabet or Microsoft. Apply a 10% discount rate and 3% terminal growth, and OpenAI and Anthropic’s valuations imply revenue of over $225 billion and $75 billion in five years, respectively. AI chip darling Nvidia is projected to hit just $350 billion by then, according to Visible Alpha.This is a young market, and use cases are vast, but cracks are starting to show. Early struggles and glitches mean 42% of companies have scrapped AI deployments this year, up from 17% in 2024.

OpenAI’s valuation is tech boom’s key man risk