Recently, many media outlets have reported that OpenAI, a leader in the generative AI field, will eventually go public and be traded on the US stock market. They emphasize that only an IPO can meet OpenAI's financing needs as it continues to expand in order to train an incredibly powerful general artificial intelligence. However, some analysts pointed out that if OpenAI considers conducting an initial public offering (IPO) in the United States in the future, the company will face many challenges, the most important of which is rewriting its corporate charter.

"The most crucial issue is that the essence of OpenAI's corporate governance belongs to a non-profit organizational structure, meaning it is not established for profit, but a project that controls the development and path of artificial intelligence technology through leadership, ultimately to achieve the 'benefit of humanity' project." Analyst Joe Albano from Seeking Alpha expressed via email. "This completely contradicts listing principles." He added. "Who would invest in a tech company that is not profit-driven?"

OpenAI wants to obtain financing through an IPO, it needs to first break free from the 'non-profit chains'.

It is understood that OpenAI's corporate organizational structure is extremely complex, but from a governance perspective, it is still a company controlled by a non-profit organization. Initially, OpenAI was established in 2015 in the form of a non-profit organization with the goal of advancing safe and beneficial artificial intelligence (AI) development. Although OpenAI created a 'capped-profit' nature subsidiary called OpenAI LP in 2019, controlled by the non-profit organization OpenAI Nonprofit to raise funds for AI research, its core governance structure is still fully controlled by OpenAI Nonprofit.

The current 'hybrid structure' of OpenAI is characterized by OpenAI Nonprofit still controlling overall operations and mission, while OpenAI LP allows for external investments to fund the high costs of AI research and development. OpenAI has spent over $10 billion in less than two years on research and development expenses. At the same time, investors' profit returns are limited within a certain range, with any excess being returned to OpenAI Nonprofit to fulfill its beneficial mission towards humanity.

It is reported that OpenAI's latest round of financing aims to reach $6.5 billion, pushing the valuation of this startup to a staggering $150 billion. This will also make this generative AI field leader, led by Sam Altman, the most valuable AI startup globally.

Although Tencent has not announced any plans related to an IPO with OpenAI, recent hires of a chief financial officer and a recent series of potential acquisitions and high valuations indicate that it may be moving in that direction.

According to media reports citing informed sources, OpenAI is also in discussions with its lawyers on how to transform its non-profit structure into a for-profit benefit corporation, and Altman is striving to push OpenAI to remove the investor profit cap. However, removing the 'profit cap' requires formal approval from the OpenAI non-profit board, which includes CEO Altman, entrepreneur Bret Taylor, and seven other members.

Analyst Uttam Dey from Seeking Alpha believes that OpenAI will eventually have an IPO, but not within the next 12 months. 'Given its complex organizational structure, OpenAI will continue to operate as a non-profit organization, so an IPO may require more time,' Uttam Dey said. 'OpenAI's current structure sets a profit cap for its investors, and if they need liquidity profits, they must overcome significant challenges.'

'Nevertheless, OpenAI seems determined to solve this problem, in my opinion, it is making significant strides forward,' he added. 'The recent hiring of Sara Friar as Chief Financial Officer strongly indicates OpenAI's determination to prepare the company for a potential initial public offering and a complete transformation into a for-profit structure.'

It is known that Friar herself has extensive experience in the capital markets. The 51-year-old senior strategist joined the future payment giant Block in 2012 before working at Goldman Sachs, where she helped guide the once-obscure payment company Block through its 2015 IPO and became the CEO of Nextdoor in 2018. Nextdoor went public in 2021.

Pros and cons of going public

If OpenAI succeeds in going public in the future, early investors like Microsoft (MSFT.US) will benefit the most. OpenAI will also gain broader liquidity profits and sources of capital.

However, becoming a public company also comes with its costs, including increased regulatory scrutiny, higher operating expenses from expansion, and increased shareholder transparency.

"Given that the company may burn 5-7 billion US dollars annually, going public may actually help the company become more disciplined," analyst Dey added.

Seeking Alpha analyst Gary Alexander found that OpenAI has important choices to improve profitability, but this may take time.

Alexander stated: "In addition to increasing subscription products and new revenue models, I also believe that going public will help increase further corporate compliance, which will help OpenAI reach many large-scale transactions at the enterprise level. "However, the biggest advantage of this IPO seems to be creating liquidity for the founders and early investors like Microsoft."

He even suggested not to buy OpenAI stocks immediately after the IPO because its valuation and demand may be exaggerated. Analyst Dey also mentioned that the stock may be very volatile in the early stages of listing.

The absolute leader in the current AI application field—big data analytics giant Palantir (PLTR.US) provided a good comparison during its initial public offering in 2020.

Alexander pointed out: "After experiencing the initial sharp rise in Palantir's stock price, it quickly began to decline, and it took the company several years to rebound again with the strong advantage brought by its fundamentals (rather than just market frenzy)."

He added that a public OpenAI may also boost the valuation of some major competitors like Microsoft and Google, creating a new public competition market for artificial intelligence.

Seeking Alpha analyst Albano stated that if OpenAI successfully goes public, it means the company "is changing direction, realizing the need for more funds to drive research and development, so it can advance Sam Altman's dream of mass production of AI chips, or the core management of OpenAI realizes that it cannot play a strong role in the global AI competition unless it aims for profit."

Editor/ping