OpenAI, the startup behind ChatGPT, is being hailed as the next big thing in Silicon Valley, with some predicting it could become the new Google or a great disruptor. But as it transforms from a nonprofit research lab into a for-profit AI powerhouse, it's worth scrutinizing OpenAI and its ambitious, sometimes chaotic, leadership.

The company recently announced a staggering $6.6 billion private funding round, the largest in Silicon Valley's history, valuing the company at $157 billion. This, despite a murky path to profitability. For context, companies with similar valuations include established giants like Goldman Sachs and Pfizer.

OpenAI's latest investors include tech titans such as Microsoft, which has invested over $13 billion since 2019, Thrive Capital, Nvidia, Cathie Wood's Ark Investment Management, and SoftBank. Notably, Apple, which had been in talks to invest, pulled out at the last minute, according to The Wall Street Journal, though the reasons remain unclear.

The Numbers Game

OpenAI expects to generate around $3.7 billion in sales this year, primarily from subscriptions to premium versions of ChatGPT and licensing its technology. However, it's projected to spend a conservative $5 billion in costs, according to the New York Times. Next year, OpenAI optimistically estimates its revenue will triple to $11.6 billion, with a lofty projection of $100 billion in sales by 2029—a more than 2,600% increase over five years.

Gil Luria, a managing director at D.A. Davidson, acknowledges OpenAI's unprecedented growth from $0 to nearly $4 billion in revenue but cautions that reaching $11 billion will require everything to go right. He dismisses the $100 billion projection as "pie in the sky," detached from reality.

The High Cost of AI

One way OpenAI could improve its margins is by cutting costs, but the economics of the generative AI industry present a challenge. Training and operating large language models is expensive, a structural cost not seen in previous tech booms. As usage of ChatGPT grows, so do the "compute" costs, requiring more advanced semiconductors and power-hungry data centers.

The Future of OpenAI

With its new capital, OpenAI can focus on developing the next iteration of ChatGPT. Luria suggests that for the company to succeed, GPT-5 must be an order of magnitude better than GPT-4. "If the next version doesn't get us closer to a model smarter than any human, their runway gets considerably shorter," he said.

The company's future also hinges on its ability to maintain its original mission amid a shift from a nonprofit to a "public benefit corporation." The exodus of founders and questions about CEO Sam Altman's commitment to that mission add another layer of complexity to OpenAI's journey.