OpenAI trims its own valuation target to $1.25 trillion before IPO

OpenAI has lowered its target company value from $1.4 trillion to $1.25 trillion in just a few weeks. It is still trying to raise up to $30 billion. The change came in the same week that Wall Street investors punished big technology companies for spending heavily on AI.

OpenAI is close to finishing a funding round of up to $30 billion. The deal would value the company at $1.25 trillion, according to CNBC, which cited people familiar with the talks. Investors linked to the United Arab Emirates (UAE) and Coatue are leading the round. OpenAI told investors on Thursday that it wants them to sign the final agreements by the end of next week. TechCrunch reported the same valuation and said the funding would help OpenAI prepare for a stock market listing, which the company now expects in 2027.

Here is why this should worry people who value AI stocks based mainly on excitement rather than business results: $1.25 trillion is a lower target than before. Earlier in October, OpenAI had already offered potential investors, including BlackRock and UAE fund MGX, a fixed price that valued the company at $1.4 trillion before the new money was added, according to reports at the time. Lowering its target by about $150 billion in just a few weeks is a meaningful change. It suggests that the company is responding to the changing mood among investors.

That mood has turned negative quickly. The Nasdaq Composite fell 2.1% over the past week, its worst weekly performance since June. Meta's shares fell 4.4%, Alphabet's fell 2.9%, and chipmakers Micron and Intel both lost more than 5%. Investors are increasingly worried that the biggest cloud and technology companies, which are borrowing money to build AI systems, may not be able to keep borrowing at this rate as bond yields rise. Microsoft, Amazon, Alphabet, Meta, and Oracle are expected to spend nearly $700 billion combined in 2026. IBM recently reported higher revenue and profit than analysts expected and raised its forecast for the full year. Even so, its shares fell because investors focused on slower cloud growth. This shows how little room the market is currently giving companies connected to AI if their results disappoint.

Sam Altman has worked hard to secure a valuation above $1 trillion, with the goal of a strong stock market listing. Earlier this year, advisers reportedly gave him a clear choice: stick to a $1 trillion valuation and list in 2027, or accept a lower valuation and go public sooner. Altman would not accept the lower price. But raising money from private investors is different from selling shares in an IPO. Private investors, rather than people trading shares on the stock market, decide the price in a private funding round. When the prices of similar publicly traded companies fall, private valuations may also need to fall.

OpenAI's financial plans make the pressure even clearer. The company aims to spend about $600 billion in total on computing power by 2030. It has also told staff that it wants to triple its yearly sales this year, compared with the $13 billion it earned last year. OpenAI's annual revenue run rate, which estimates a full year's revenue based on its current pace, has risen toward $70 billion as more businesses buy its services. Its number of weekly active users has also passed 1 billion. A company spending and losing money on this scale needs investors to believe that its growth will continue. Right now, investors want proof, not just promises.

Then there is Anthropic, the rival that investors are comparing with OpenAI. Anthropic's funding round in May, called Series H, valued the company at $965 billion. That was higher than OpenAI's valuation of $852 billion at the time. Anthropic had $30 billion in annual recurring revenue, or ARR, which is the yearly value of its ongoing subscriptions and other recurring contracts. That figure was growing about tenfold per year. OpenAI had $25 billion in ARR, growing about 3.4 times per year. OpenAI's chief financial officer, Sarah Friar, has told staff not to worry about when Anthropic might go public, saying OpenAI is following its own path. Executives often say things like this when they would rather avoid repeated questions about a rival.

To be direct, a valuation of $1.25 trillion is still enormous for a company that does not make a profit and whose user growth has stopped increasing. Lowering the target does not mean OpenAI is in trouble. But the company was expected to escape the worries about AI spending that have affected Alphabet, Meta, and IBM. Its lower valuation now shows that it, too, is affected by investors' doubts.

OpenAI is also negotiating a separate business deal alongside its fundraising round to secure more computing capacity in the UAE. The final amount of money it will raise has not yet been decided. The next important question is whether the $1.25 trillion valuation stays the same when the agreements are signed, or whether it falls again before OpenAI lists its shares on a public stock exchange, which it expects to do sometime in 2027.