Sam Altman's OpenAI Just Completed a $7 Billion Share Sale as It Eyes a Trillion-Dollar IPO. What Would That Valuation Mean for Investors?

Sam Altman's OpenAI recently concluded a $7 billion employee share sale, valuing the company at $852 billion. This move wasn't for raising capital, but rather to provide liquidity for current and former employees. OpenAI is preparing to go public, with a confidential registration statement submitted for an IPO in June. It's considering whether to delay the listing, potentially until 2027, or to go public sooner at a lower price, possibly around the $852 billion valuation.

A $1 trillion valuation would be about 17.4% higher than the employee tender valuation, which might seem excessive for a company growing at such a rapid pace. However, OpenAI must be valued at roughly 44 times sales, and even if it launches at the $852 billion valuation, it would equate to around 37 times sales. This valuations is undoubtedly high, but it's important to note that OpenAI isn't profitable, and its costs are scaling alongside its sales.

The company's revenue of $5.7 billion in the first quarter, annualized to $22.8 billion, suggests an incredible multiple, but doubts persist about whether this growth will translate into sustainable profits. Despite this, nearly 7 in 10 current stock investors surveyed expressed interest in buying OpenAI, Anthropic, or both if they went public.

While the stock could potentially outperform initially, as seen with Space Exploration Technologies after its IPO, there are concerns about whether this positive trend will persist. Until OpenAI demonstrates clearer evidence of turning its remarkable revenue growth into sustainable profits, the author advises staying away from any IPO.