You Have No Idea How Screwed OpenAI Actually Is

When you find yourself in a hole, at what point do you stop digging?

Photo by BoliviaInteligente on Unsplash

It is almost funny how the world has only just cottoned on to the AI bubble. Every time I read the news, it feels like an arsonist complaining that the building is on fire. Every major banker, venture capitalist, financial pundit and media outlet that made AI hype their entire personality a year ago is now warning that when the AI bubble pops, it will crash our economy. Great… And whose fault is that, exactly? But what I find truly fascinating about this sudden snap back to reality is that it is totally surface-level. For example, none of these people have even tried to look under the hood of OpenAI, which is overwhelmingly responsible for this bubble. That is almost offensive, because they could probably build a mass grave with all the skeletons in their closet. So, let’s dig into OpenAI and put a name to these ghouls so terrifying no one can talk about them.

Earlier this year, The Information analysed OpenAI’s predictions and found that they were on track to post a $14 billion loss in 2026 (read more here). This was on the heels of OpenAI nearly going bankrupt and experiencing a $6 billion investor bailout at the end of 2024. So, needless to say, if losses grew to that level, OpenAI would be seen as a doomed venture.

Well, recently, The Information posted another report on OpenAI and found that in the first half of this year, they made $4.3 billion in revenue and posted a net loss of $13.5 billion. So, in the first half of this year, OpenAI lost as much money as they were predicted to lose for the entirety of next year! This means that OpenAI is losing about three times more money than it’s earning and is on track to post a $27 billion net loss by the end of the year!

Or, to put it another way, OpenAI’s 2025 revenue is on track to only be $3.1 billion more than last year, while its annual operational costs are set to be $24.1 billion more than last year. So, for every dollar of revenue growth OpenAI has, it is costing them $7.77!

I cannot stress how unprecedentedly dreadful that is. It shows that the promised future investors were piling their money into is a fairy tale. This is a money black hole.

Now, The Information did point out that half of these losses came from convertible equity issued to investors. Convertible equity is an odd blend of raising capital with both debt (loan) and equity (selling shares in the company). Essentially, it starts off as a loan, but one that can be “paid off” with a set amount of equity down the road rather than cash. In other words, OpenAI is having to pay off a huge amount of debt that it used to grow but didn’t grow enough, and now that debt is registered as a loss. This kind of issue won’t stop, though. As I covered in a previous article, the entire AI industry, including OpenAI, is turning to debt more and more to keep the lights on, as equity only gets you so far.

The Financial Times, being a ‘responsible’ fiscal news outlet, didn’t take this convertible equity into account and found that OpenAI had posted a loss of $8 billion for the first half of the year. Sounds better, right? Even if you take this moronically rosy analysis to heart, that still means OpenAI is on track to post a net loss of $16 billion in 2025! Again, that is still more than OpenAI itself predicted they would post next year.

No matter how you try to spin it, this shows that OpenAI’s expenditure is out of control and they are not getting anywhere near the returns they need to even be remotely financially sustainable.

But are we so sure the future is this bleak? The entire AI bubble is predicated on the notion that these tools will get radically better thanks to the truly gargantuan investment in AI and will eventually displace jobs and hoover up exponentially more revenue.

Well, earlier this year, OpenAI said it planned to reach profitability by 2029 and was aiming for $100 billion in annual revenue by then. That $100 billion figure relies on some wildly optimistic AI adoption rates, which have already started to slow down significantly this year (read more here).

But even OpenAI’s own numbers didn’t add up, and if you actually look into them, they suggest that by 2029, they will post annual losses in the low hundreds of billions of dollars, as the realistic overall operational costs of their $500 billion Project Stargate AI data centre are going to be several hundred billion dollars a year (read more here).

However, since then, OpenAI has announced another $500 billion in AI data centre deals over the next five years with AMD, Broadcom, Nvidia, and Oracle. So OpenAI is doubling its planned expenditure over the next five years!

I need to put this into context, because this is going to make OpenAI’s revenue problem so much worse!

Data centres are expensive to use. They cost roughly 3–5 times their build cost in operational costs over their 15-year lifespan, averaging out to an annual operational cost of 26% of their build cost. But to utilise a data centre, you need AI developers, people collecting data, people sorting data, people beta testing new models and such. This is why data centre operational costs are only around 40% of an AI company’s operational costs.

In other words, this $1 trillion planned data centre investment could cost OpenAI $650 billion in annual operational costs by 2029!