Last week, I reported on how OpenAI updated its financial forecasts for investors. The company expects to spend nearly $115 billion between 2025 and 2029. That’s $80 billion more than it forecast in the first quarter. As the chart shows, the startup—recently valued at $500 billion in a sale of employee shares—has been able to handily raise more money as those costs have risen. The tens of billions more needed imply that the company could look beyond venture capital, say by entering into project financing arrangements that use debt, to fund its soaring costs to run its models as well as costs related to data centers to house its servers.
Hi, it’s Sri here! Before we get into today’s column, I wanted to draw attention to a story Natasha just published on the returns for some of Andreessen Horowitz’s flagship funds. As she details, the funds launched in the depths of crypto’s winter have wildly outperformed other VC funds, thanks to skyrocketing token prices (some of which the firm was able to buy before launch, at a discount.) In contrast, big growth funds showed the bruises of some unfortunate ZIRP-era bets. Of course, a few strong exits could change this picture...
Last week, I reported on how OpenAI updated its financial forecasts for investors. The company expects to spend nearly $115 billion between 2025 and 2029. That’s $80 billion more than it forecast in the first quarter.
As the chart shows, the startup—recently valued at $500 billion in a sale of employee shares—has been able to handily raise more money as those costs have risen. The tens of billions more needed imply that the company could look beyond venture capital, say by entering into project financing arrangements that use debt, to fund its soaring costs to run its models as well as costs related to data centers to house its servers.
OpenAI has already raised about $38 billion in funding from Microsoft, Thrive Capital, SoftBank and others, mostly in the last two years, as the success of ChatGPT and new competition from xAI, Google and Meta Platforms drove up its technology costs.
Some of that money is part of an ongoing $41 billion round that will include $30 billion from lead investor SoftBank. The financing, which should close by the end of the year, hinges on restructuring the startup’s for-profit entity so it can eventually go public.
When it completes the SoftBank-led funding, it will have raised about $60 billion altogether, including billions of dollars in 2019, 2021 and 2023 from Microsoft in both cash and credits to use its Azure cloud services. OpenAI had roughly $7.6 billion in cash on its books at the end of last year.
At the rate of its projected cash burn, or negative free cash flow, its funding will last into 2027, when the company had previously told investors it expects to raise another $17 billion. It is not clear if the company still plans that funding.
The rate of cash burn could increase even moreas OpenAI’s business grows, of course. Already, its revenue has rapidly increased to about $12 billion on an annualized basis as of July. The company projected $13 billion in total revenue this year, up three and a half times from last year and higher than an earlier forecast, and expects to generate about $200 billion in revenue in 2030, with ChatGPT as the largest revenue driver.
Meanwhile, it’s been increasing forecasts for cash burn. As of July, it expected to burn over $8 billion this year compared to about $2 billion last year. In comparison, in 2023, OpenAI burned just $200 million! And as we reported Friday, OpenAI expects cash burn to rise to more than $17 billion next year, about $10 billion more than its earlier projections.
A major reason is OpenAI’s spending on computing. The company has told investors that training costs, or the costs to develop artificial intelligence models, and inference costs, the costs of running AI products such as ChatGPT, would amount to roughly $16 billion this year, up from about $4 billion last year.
These costs will rise dramatically in the coming years, the company has disclosed. Its executives have indicated they’ll need more money to support the growth of ChatGPT and to develop more-advanced AI.
At the same time, OpenAI has committed to investing about $18 billion in developing data centers, using money drawn from its $41 billion fundraise, alongside investments from SoftBank, Oracle and United Arab Emirates investment firm MGX.
The war for AI talent is also expensive. OpenAI spent roughly $700 million on employee salaries last year and told investors in the first quarter it expected to spend $1.5 billion this year, which has likely gone up with the fierce competition for talent from Meta and others.
And that’s not including stock-based compensation, which the company projected to be about $6 billion this year but which isn’t a cash expense. Still, stock based compensation can eventually dilute the value of existing stockholders’ shares when the company goes public.
Investors, get your checkbooks ready.
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