The numbers OpenAI chooses to present are impressive. Company president Greg Brockman said at a Wall Street Journal conference earlier this month that the company's annualized revenue rate rose 70% in the third quarter and that enterprise revenue doubled. According to reports, the annualized revenue rate approached $70 billion in September. That is growth with almost no precedent in the history of software.
The numbers the company does not present tell a different story. OpenAI is private and does not publish financial statements, but Microsoft, which owns a large stake, must report its share of the losses. Last quarter Microsoft reported a $4.1 billion pre-tax loss related to its OpenAI investment. According to an estimate by a Bernstein analyst, derived from that figure and Microsoft's ownership share, OpenAI's net loss in the quarter may have exceeded $12 billion. That is an estimate, not an official figure, but the order of magnitude is clear.
How does a company with tens of billions in revenue lose such sums? The answer is compute. Every user, every question and every agent costs money in chips, power and data centers, and training each new generation of models costs more than the last. OpenAI is committing to infrastructure contracts worth hundreds of billions of dollars for years ahead, hoping revenue will grow faster than costs. So far, by every sign, that has not happened.
That is not necessarily a problem. Amazon also lost money for years, then became a profit machine. But the difference is scale: OpenAI needs fundraising in the tens of billions of dollars to keep operating, and depends on investors, cloud providers and chipmakers continuing to believe the day revenue overtakes costs is near. In a week when US rates are rising again and the market is reminded that money costs money, that belief is being tested.
And why does it matter in Israel? Because almost the entire AI industry, including many Israeli startups building on the models of OpenAI and its rivals, rests on the assumption that model prices will keep falling. If the companies developing the models one day have to start truly making money, prices may rise, and whoever built a business on subsidized pricing will discover how dependent on it they were.
