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

Frontier AI lab OpenAI has reduced its target valuation for its latest funding round after some investors pushed back on its proposed $1.4 trillion price tag, the Financial Times has reported.

Citing people familiar with the matter, the paper reported that OpenAI is in the final stages of a $30 billion raise that is expected to value the company at $1.25 trillion. This would mark an almost 50 per cent increase from its present $852 billion valuation, but fall short of the $1.4 trillion pitched to investors earlier in the month, people familiar with the matter told the FT.

People with knowledge of OpenAI’s Morgan Stanley-led pitch for a $1.4 trillion valuation told the paper that client demand was weaker than in the past. “There has been zero clamouring,” one of the people told the FT. “All the prior times [OpenAI] have been on there’s been a frenzy. This time is a bit of a thud.”

Some of this is caused by investor fatigue after having invested heavily in the ChatGPT maker’s previous funding rounds, some of the people said. In March, the company closed its largest funding round ever at $122 billion, and raised $40 billion just one year prior.

Other investors told the FT that they were waiting to see how rival Anthropic’s initial public offering, expected later this year, was priced before investing in OpenAI.

The fall in valuation follows another major sell-off of US tech stocks, with the share price of giants including Meta, Oracle, Alphabet and Nvidia all dropping more than 5 per cent in the last week of trading. Facebook and Instagram owner Meta has been particularly affected, with shares falling around 12 per cent since Friday 16 October.

The massive amount of debt that AI companies are mobilising to build data centres is one major cause for concern, and investors have begun tightening their belts. Bond yields for data centres have spiked sharply in the past month, and data centre operator CoreWeave told the FT earlier in October that it was now looking to tap the “unlimited” capital of insurance companies to fuel its expansion.