OpenAI trims funding valuation to $1.25tn ahead of a planned IPO

What happened

OpenAI has cut the price it is asking new backers to pay, the Financial Times (FT) reported, citing documents it had seen. According to the FT, the AI lab had floated a $1.4 trillion valuation earlier this month before settling on $1.25 trillion. CNBC, citing people familiar with the talks, reported on Thursday that OpenAI is raising up to $30 billion at that pre-money figure, meaning it excludes the new cash. Investors from the United Arab Emirates and the US firm Coatue are leading, CNBC said. OpenAI told investors it hopes to have signatures by the end of next week, though the final size is still open. OpenAI declined to comment to TechCrunch.

What it means

A lower asking price is unusual news for OpenAI, whose private valuation has only climbed so far. In March it raised $122 billion of committed capital at an $852 billion post-money valuation, according to SiliconANGLE and TechCrunch, with Amazon, SoftBank and Nvidia among the backers. Bloomberg first reported in late September that the company was seeking at least $30 billion at around $1.4 trillion. The new figure is about $150 billion below that, yet still roughly 47% above the March price, and would make OpenAI the most valuable private company ever, TechCrunch noted.

The round is being framed as an "opportunistic" bridge, CNBC reported: extra private money to keep spending on computing power while the company prepares to list. OpenAI confidentially filed its prospectus with the Securities and Exchange Commission in June. Its timing has wobbled since. Chief financial officer Sarah Friar told staff in August the company would be public in 2027, while chief executive Sam Altman said the following month that listing right now would be ill-advised, according to CNBC. Alongside the investment, OpenAI is negotiating a separate deal to secure more computing capacity from the UAE, CNBC added.

Competition for investor money helps explain the urgency. Rival Anthropic also filed confidentially in June and is widely expected to go public soon, reportedly seeking $1.5 trillion to $2 trillion, CNBC said. PYMNTS cited a Reuters report from Monday that OpenAI was racing to sign up backers before Anthropic lists, as both court the same pool of investors. Whatever price OpenAI agrees now becomes a reference point for its own eventual IPO and for how public markets value AI developers.

Revenue figures add some uncertainty. Reuters reported in late September that OpenAI's annualized revenue run rate was nearing $70 billion, according to Pulse 2, while PYMNTS cited an FT report from October 8 that the company told investors it was approaching $50 billion at the end of September. Sources differ, and neither OpenAI nor the reports linked the revenue picture to the trimmed valuation.

The bull case

Even after the cut, investors appear willing to commit up to $30 billion at a valuation well above March's, with a quick signing timetable and a sovereign-backed lead. The money and a possible UAE compute deal would help fund the infrastructure OpenAI needs, and a more realistic price could make a later IPO easier to sell and less likely to disappoint new shareholders.

The bear case

Stepping back from $1.4 trillion suggests buyers pushed back on price, which could temper hopes for an even richer IPO. OpenAI's own forecast of roughly $600 billion in compute spending by 2030, reported by CNBC, implies heavy and continuing cash needs. If Anthropic lists first and sets a high bar, OpenAI may face tougher comparisons, and the final round size is still not settled.