OpenAI ‘cuts valuation target’ to $1.25tn after facing resistance to higher price

OpenAI, a company that develops advanced artificial intelligence (AI), has lowered the value it hopes to reach in its latest fundraising round. This happened after some investors were unwilling to accept its proposed value of $1.4 trillion, according to the Financial Times.

The Financial Times reported, based on information from people who know about the plans, that OpenAI is close to finishing a fundraising round worth $30 billion. The deal is expected to value the company at $1.25 trillion. That would be almost 50 per cent higher than its current value of $852 billion. However, it would still be below the $1.4 trillion value that OpenAI suggested to investors earlier this month, according to people familiar with the situation who spoke to the newspaper.

People who knew about OpenAI's attempt to reach a $1.4 trillion valuation, with Morgan Stanley leading the effort, told the Financial Times that investors were showing less interest than before. One person said there had been almost no excitement. In earlier fundraising rounds, investors had been very eager to take part, but this time the response was disappointing.

Some of the people said investors may be getting tired of putting money into OpenAI because they have already invested large amounts in earlier fundraising rounds. In March, the company behind ChatGPT completed its biggest fundraising round ever, raising $122 billion. Just one year earlier, it had raised $40 billion.

Other investors told the Financial Times that they wanted to wait and see the share price of OpenAI's competitor Anthropic when it first sells shares to the public. This event, known as an initial public offering (IPO), is expected to happen later this year. They wanted to see how much investors would pay for Anthropic before deciding whether to invest in OpenAI.

OpenAI's lower target value comes after another big drop in the prices of US technology company shares. Shares in major companies, including Meta, Oracle, Alphabet and Nvidia, have all fallen by more than 5 per cent during the past week of trading. Meta, which owns Facebook and Instagram, has been hit especially hard. Its share price has dropped by around 12 per cent since Friday 16 October.

One major worry is the huge amount of money AI companies are borrowing to build data centres, which are large buildings filled with computers. Investors are becoming more careful about where they put their money. Over the past month, the yields on bonds used to fund data centres have risen sharply. This means investors are demanding higher returns for lending money. Earlier in October, data centre company CoreWeave told the Financial Times that it was looking for funding from insurance companies, which it described as having access to an almost "unlimited" amount of money, to help pay for its expansion.