Latest / Bloomberg Intelligence / OpenAI Expects $70 Billion in Annualized Revenue by End of 2026

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OpenAI Expects $70 Billion in Annualized Revenue by End of 2026 · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios.
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  Speaker 2: Podcasts.
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  Speaker 1: Radio.
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  Speaker 3: News.
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  Speaker 4: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 1: We can't go five minutes without talking about AI, John Tucker.
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  Speaker 1: I think it's been- Is it still AI?
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  Speaker 5: I thought it was like super- Oh.
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  Speaker 1: Super intelligence.
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  Speaker 6: Yeah.
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  Speaker 1: Well, depending who you're talking to.
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  Speaker 5: Don't get on the enemies list, Scarlett.
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  Speaker 1: No, no, no. Wouldn't want to do that. Let's talk
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  Speaker 1: about open AI because there was some reporting that it
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  Speaker 1: now expects to reach or exceed $ 70 billion in annualized
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  Speaker 1: revenue by the end of the year. That's according to
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  Speaker 1: people familiar with the matter. And We want to understand
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  Speaker 1: where that stands based on what people were thinking previously.
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  Speaker 1: Matt Bloxham is our Bloomberg Intelligence Senior Media and Tech Analyst.
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  Speaker 1: He joins us now with more. And Matt, there's some
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  Speaker 1: confusion here over just how much OpenAI can book in
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  Speaker 1: revenue by the end of the year. Are they doing
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  Speaker 1: better than we expected or worse than we expected, slower
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  Speaker 1: than they expected? How are we thinking about this?
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  Speaker 7: Yeah, it's a good question. I think probably the answer
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  Speaker 7: is that they're more or less where people were thinking
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  Speaker 7: they would be. It just depends how you're defining the revenue.
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  Speaker 7: And I think a lot of the confusion came that
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  Speaker 7: there had been some indications or calculations that by the
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  Speaker 7: end of September, they would be at that $ 70 billion
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  Speaker 7: annualized revenue run rate. And obviously, on the face of
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  Speaker 7: it now, it looks like that's been shifted to But actually,
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  Speaker 7: that September number was being calculated according to the anthropic
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  Speaker 7: way of booking revenue. And OpenAI does things slightly differently.
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  Speaker 7: And in particular, they don't. revenue that's generated through third-party
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  Speaker 7: providers in the way that Anthropic does. So I think
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  Speaker 7: if you were to kind of adjust on a like-for-like basis,
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  Speaker 7: probably actually there isn't a discrepancy and that they're kind
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  Speaker 7: of largely tracking revenue where they had been previously indicating
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  Speaker 7: investors but you know I think obviously it's been a
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  Speaker 7: bit of a lumpy year for open AI and I
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  Speaker 7: think earlier in the year you might remember that the
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  Speaker 7: pace of sales growth was perhaps running lower than previously
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  Speaker 7: expected and then they were overtaken by Anthropic right at
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  Speaker 7: that point Anthropic was you know much more into the
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  Speaker 7: enterprise market so I think, yeah, a lot of noise there,
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  Speaker 7: but probably they're kind of tracking with where their investors
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  Speaker 7: probably thought they were.
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  Speaker 5: Matt, just to be clear, this is the key growth
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  Speaker 5: metric that we use, right?
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  Speaker 3: Yes.
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  Speaker 7: Yeah, mainly because it's the only kind of financial metric.
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  Speaker 5: That you've got to play with.
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  Speaker 3: Yeah, exactly.
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  Speaker 7: And, you know, these companies are being valued at pretty
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  Speaker 7: punchy multiples of that revenue. So if you look at OpenAI,
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  Speaker 7: you know, they're looking to raise money at a total
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  Speaker 7: valuation of 1.4 trillion. So that's kind of roughly 20
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  Speaker 7: times that kind of forward 70 billion revenue number. And
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  Speaker 7: if you look at SpaceX, I guess the only really
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  Speaker 7: directly comparable traded company, that's on about 25, 26 times
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  Speaker 7: forward sales. So yeah, none of these companies are profitable yet.
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  Speaker 7: So you can't look at more traditional valuation metrics. So
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  Speaker 7: really forward revenue growth is the only one. And these
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  Speaker 7: companies are growing tremendously. top line at an exponential rate.
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  Speaker 7: So that's kind of why you've got these fairly lofty multiples.
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  Speaker 5: Can we move on to SpaceX since you mentioned Elon?
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  Speaker 5: In that space, and I ask this question sort of jokingly,
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  Speaker 5: but maybe it's not a joke. Instead of trying to
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  Speaker 5: expand with the broadband telephone service, why don't they just
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  Speaker 5: buy like an existing company, like T-Mobile?
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  Speaker 7: Yeah, it's a good question. And I guess this is
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  Speaker 7: the kind of latest generation of disruptive entrance into that
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  Speaker 7: kind of mobile market. We've seen a lot of it
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  Speaker 7: in Europe. I think historically, the US has been largely
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  Speaker 7: immune to that. So they're kind of getting a bit
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  Speaker 7: of a taste of what's happened over the last couple
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  Speaker 7: of decades i mean probably the answer is that he
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  Speaker 7: kind of feels that the uh the business model of
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  Speaker 7: the established companies is heavy with cost and burdened by
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  Speaker 7: regulation and that they can deliver services more cost effectively
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  Speaker 7: and account in a new innovative way and therefore kind
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  Speaker 7: of take market share so from their perspective the valuation
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  Speaker 7: or the cost of buying an existing player is far
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  Speaker 7: too expensive relative to what they think they need to
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  Speaker 7: invest to gain a market share and a strong position
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  Speaker 7: in that market.
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  Speaker 1: No, that's a really good point. I mean, the money
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  Speaker 1: that they do have, they're using to build out AI
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  Speaker 1: data centers, not necessarily to go buy another company.
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  Speaker 5: But I mean, is there enough spectrum out there if
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  Speaker 5: you want to get into this business?
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  Speaker 3: That's the question. Yeah.
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  Speaker 7: And, you know, there's certainly time to amass them. Whether
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  Speaker 7: it's enough to kind of really take on the established
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  Speaker 7: players effectively, we'll have to wait and see. But I
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  Speaker 7: think they see it as a kind of marginal opportunity
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  Speaker 7: that is incremental revenue. on top of the core business.
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  Speaker 7: And if you kind of go back a few years,
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  Speaker 7: we were talking similarly about T-Mobile, way back when T-Mobile
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  Speaker 7: was perceived as a kind of fairly low quality carrier,
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  Speaker 7: and they kind of completely transformed their business model and
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  Speaker 7: have really become a big challenger to Verizon AT & T.
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  Speaker 7: And I think to some degree, this is the next
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  Speaker 7: iteration of that competitive threat.
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  Speaker 1: Stay with us.
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  Speaker 4: More from Bloomberg Intelligence coming up after this. You're listening
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  Speaker 4: to the Bloomberg Intelligence Podcast. Catch us live weekdays at
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  Speaker 4: the Bloomberg Business App. Listen on demand wherever you get
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  Speaker 4: your podcasts or watch us live on YouTube.
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  Speaker 1: Let's switch gears because it is earnings season.
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  Speaker 5: It is earnings season. And you know what? When Charlie
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  Speaker 5: Pellett of Bloomberg Radio flies full fare or close to it,
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  Speaker 5: you know things are amiss in the airline industry or
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  Speaker 5: things at least have. change significantly.
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  Speaker 1: Charlie is known throughout the office for knowing how to
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  Speaker 1: get a good deal. He is the guy to go
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  Speaker 1: to for all of that.
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  Speaker 6: I really try, but I got to tell you, it's
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  Speaker 6: gotten very tough. And part of the reason is that
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  Speaker 6: the airlines have also been cutting back on capacity. So
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  Speaker 6: you got fewer planes flying from here to there. And
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  Speaker 6: what does that do? Less seats, higher rates. And that
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  Speaker 6: brings us to Delta's earnings. Sid Phillip, Bloomberg chief correspondent
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  Speaker 6: for global aviation is joining us now. Is it Simply
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  Speaker 6: the fact that all the discounts have gone away and
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  Speaker 6: the airlines are going to get whatever they can out
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  Speaker 6: of the flying public.
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  Speaker 2: The flying public is key to getting them across these
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  Speaker 2: higher fuel prices. And so for the, I mean, Delta
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  Speaker 2: had to cut their earnings forecast for the year. They
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  Speaker 2: sort of expect now to get between 510 and 560
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  Speaker 2: a share in 2026, down from 650 to 750. And
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  Speaker 2: that's largely down to jet fuel. And so the war
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  Speaker 2: in the Middle East has driven up jet fuel prices significantly.
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  Speaker 2: And airlines are desperate to find ways to sort of
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  Speaker 2: mitigate that higher fuel cost. And the way they've sort
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  Speaker 2: of decided to do that is through high affairs.
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  Speaker 1: At one point, these airlines used to hedge their jet
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  Speaker 1: fuel prices and they don't anymore. But I do recall
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  Speaker 1: that Delta owned a refinery, I believe.
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  Speaker 2: So Delta does own a refinery. And so they are
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  Speaker 2: one of the few airlines and I think probably the
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  Speaker 2: only airline in the world that has sort of been
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  Speaker 2: better insulated from this because of the fact that they
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  Speaker 2: own a refinery. And so some of that higher jet
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  Speaker 2: fuel prices are offset by the profitability of the refinery.
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  Speaker 2: At the same time, jet fuel prices have surged. And
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  Speaker 2: so for airlines, they have to find a way to
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  Speaker 2: pass on those higher fuel costs. And for Delta, they're
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  Speaker 2: saying demand is holding up. They're saying people are willing
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  Speaker 2: to pay the higher fares because travel is a priority.
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  Speaker 2: Other airlines are sort of seeing less of an impact.
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  Speaker 5: I've been warning ever since the big yellow airplane went away.
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  Speaker 5: Is it really like the end of discount airlines altogether?
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  Speaker 2: So it is that whole K-shaped economy that we keep
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  Speaker 2: coming back to where Delta sees people continuing to pay
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  Speaker 2: for business class seats and premium airfares, while at the
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  Speaker 2: bottom end of the curve, people are sort of being
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  Speaker 2: more astute about where they fly to, how much they
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  Speaker 2: spend on travel, and cutting back where they need to.
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  Speaker 2: There is that skew in the market where Delta and United,
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  Speaker 2: which went all in on premium travel, are seeing demand
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  Speaker 2: continue to sort of hold up, whereas other carriers that
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  Speaker 2: are sort of more exposed to price sensitive customers are
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  Speaker 2: seeing some sort of demand waning.
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  Speaker 1: I recently flew from California back to New York, and
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  Speaker 1: I noticed that the first third of the airplane was
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  Speaker 1: first class. The second third of the airplane was business class.
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  Speaker 1: And the last third was economy. I mean, economy used
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  Speaker 1: to be two thirds.
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  Speaker 5: Oh, economy is like this big now.
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  Speaker 1: Yeah. It's tiny. And we're seeing other airlines kind of
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  Speaker 1: move in the same direction of banking all on premium products. passengers, right?
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  Speaker 1: I mean, Southwest now makes you pay for your checked
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  Speaker 1: in luggage and they have launched a premium credit card.
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  Speaker 1: JetBlue has a first class that they just launched as well.
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  Speaker 5: Yeah.
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  Speaker 2: So every airline is looking to sort of lean on
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  Speaker 2: those higher paying customers. So we're seeing airlines, including JetBlue
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  Speaker 2: and others launching new lounges, premium cabins, talking about live
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  Speaker 2: flat seats. And so we're seeing airlines really sort of
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  Speaker 2: catering to that premium customer who can afford to pay
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  Speaker 2: those higher prices at a time when price-sensitive customers are saying,
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  Speaker 2: maybe I won't fly this Thanksgiving or this Christmas.
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  Speaker 5: And relying on those premium customers who should get back
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  Speaker 5: their earnings. How are they doing? Is it working? It
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  Speaker 5: seems to be working.
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  Speaker 2: Delta today talked about how they are 60% booked for December.
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  Speaker 2: They're seeing bookings continuing to be strong. And so we're
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  Speaker 2: seeing that the airlines are saying that premium customers are
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  Speaker 2: still feeling good about their spending.
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  Speaker 1: Charlie Pellett, you have lots of different credit cards. You
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  Speaker 1: know how to game these programs. Is it as easy
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  Speaker 1: as it was to book flights using those points?
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  Speaker 6: Well, there are two answers there. The answer is yes,
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  Speaker 6: it is, Scarlett, but you're going to be paying a
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  Speaker 6: lot more. So what they've done is it used to
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  Speaker 6: be back in the day, 20,000 points got you a ticket.
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  Speaker 6: Then they upped it to 25,000. And now what they
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  Speaker 6: have done is they have introduced floating requirements. So, yeah,
• 10:47
  Speaker 6: you can always get a ticket to Miami right around
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  Speaker 6: the holidays, but it used to be a 25,000-point redemption,
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  Speaker 6: but now it might be 50,000 points or even more
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  Speaker 6: just to get those tickets at peak times. So it's
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  Speaker 6: kind of an economist's answer, wasn't it? Yes and no.
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  Speaker 5: Sid, this is a guy who had the stewardess make
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  Speaker 5: an announcement on the aircraft with his then-fiancée to propose
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  Speaker 5: to her on the aircraft.
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  Speaker 6: Yeah, those are, you know, I've done a lot of
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  Speaker 6: crazy things over the years. I mean, I've flown into
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  Speaker 6: a lot of airports. It was sweet and lovely. I
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  Speaker 6: flew all the way to Nepal for three nights in
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  Speaker 6: Nepal to fly into the world's most dangerous airport.
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  Speaker 5: I mean, Lukla. What an experience that was.
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  Speaker 6: Yeah, you know it well. Me and you, we ought
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  Speaker 6: to be airplane buddies taking these wild trips, doing things
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  Speaker 6: like that.
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  Speaker 5: We should.
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  Speaker 1: You guys should do a show on that. I'd watch it.
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  Speaker 5: Yeah, there you go. Edge of your seat.
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  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 11:47
  Speaker 4: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 11:51
  Speaker 4: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 11:54
  Speaker 4: Auto with the Bloomberg Business app. Listen on demand wherever
• 11:58
  Speaker 4: you get your podcasts or watch us live on YouTube.
• 12:02
  Speaker 5: Let's talk about equities. And, you know, somebody puts out
• 12:05
  Speaker 5: a list of the 10 companies to watch for the
• 12:08
  Speaker 5: fourth quarter. Let's get right to them. Joining us on
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  Speaker 5: Zoom from London, Bloomberg's Tim Craighead, our global chief content officer.
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  Speaker 5: How do you put this list together?
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  Speaker 3: Yeah, it's great to be here. So this is an
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  Speaker 3: ongoing every quarter project. The year ahead, it's 50 as
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  Speaker 3: opposed to 10 companies. And it's all based off of
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  Speaker 3: filtering down our set of focus ideas to ones that
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  Speaker 3: really make sense to zero in on, in this case,
• 12:40
  Speaker 3: in the fourth quarter. And focus ideas, just as a reminder,
• 12:45
  Speaker 3: these are companies where our analysts have a really strong view,
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  Speaker 3: a high conviction view that they think is different from
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  Speaker 3: what everybody thinks, whether it be consensus expectations or management
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  Speaker 3: guidance or And there's something coming up that's going to
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  Speaker 3: change the market's mentality. And so, yeah, these are 10,
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  Speaker 3: we think, quite pertinent, relevant ideas now.
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  Speaker 1: Okay. So there's a catalyst for each of these companies
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  Speaker 1: that you have identified. Let's talk about Coca-Cola, the soft
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  Speaker 1: drink maker. What's the catalyst for Coca-Cola?
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  Speaker 3: So this is somewhat unusual in that this isn't so
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  Speaker 3: much about what's going on with Coca-Cola and it's drinks business.
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  Speaker 3: This is actually about a long-running fight with the Internal
• 13:35
  Speaker 3: Revenue Service, where the IRS is saying that the company
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  Speaker 3: has got some back taxes that they need to pay,
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  Speaker 3: given the way that they've accounted for various aspects of
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  Speaker 3: their business. And the U.S. Court of Appeals in the
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  Speaker 3: 11th Circuit should decide whether this multi-billion dollar tax bill
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  Speaker 3: is going to go through as the IRS expects. We
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  Speaker 3: think that there's a good chance it will go against
• 14:09
  Speaker 3: Koch and will lead to permanently higher tax costs.
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  Speaker 5: There was a time, it wasn't that long ago, where
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  Speaker 5: I believe Coca-Cola was considered to be the number one
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  Speaker 5: generator of wealth in terms of stocks.
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  Speaker 3: Interesting, huh?
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  Speaker 5: Yeah. Next up.
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  Speaker 3: Times change.
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  Speaker 5: If I got this correctly, is it an individual stock
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  Speaker 5: or a sector? But coal?
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  Speaker 3: So China Coal is about a company. And it's, you know,
• 14:42
  Speaker 3: China Coal Energy is the company. And this is a,
• 14:46
  Speaker 3: you know, it's a company that produces coal in China. And,
• 14:52
  Speaker 3: you know, yeah, it's a business that's alive and well
• 14:55
  Speaker 3: in China, although they are moving more and more towards,
• 14:59
  Speaker 3: you know, electricity, just like everybody is. But you'd think
• 15:04
  Speaker 3: that they're in a good spot, in a way, because
• 15:07
  Speaker 3: of what's transpired in the that are important for China,
• 15:13
  Speaker 3: and they'd have to lean back on coal. That should
• 15:16
  Speaker 3: be good. But these guys have had an accident in
• 15:22
  Speaker 3: their main production area that has really clamped on their production.
• 15:29
  Speaker 3: It's holding them back from taking advantage of what otherwise
• 15:33
  Speaker 3: would have been something of an opportunity. And we think
• 15:36
  Speaker 3: that there's, you know, ongoing constraint and expectations are too
• 15:41
  Speaker 3: high for a recovery given the backdrop because of this
• 15:45
  Speaker 3: constraint on their production.
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  Speaker 6: Okay.
• 15:48
  Speaker 3: So that's a nuanced story.
• 15:50
  Speaker 1: Yeah, absolutely.
• 15:52
  Speaker 4: Absolutely.
• 15:53
  Speaker 1: Another company you point out to watch for, but maybe
• 15:56
  Speaker 1: for negative reasons as well, is Travis Perkins.
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  Speaker 3: Yeah. So Travis Perkins is a building supply company over
• 16:06
  Speaker 3: here in the UK. And as a homeowner, unfortunately, I
• 16:11
  Speaker 3: have to say that the housing market is somewhat under
• 16:14
  Speaker 3: pressure over here, as it is in various places. And
• 16:19
  Speaker 3: certainly higher interest rates is creating further pressure on it
• 16:24
  Speaker 3: as well. It's just not a great environment to be
• 16:26
  Speaker 3: a building materials supplier, yet expectations have been there for
• 16:30
  Speaker 3: something of a recovery. We think they're up for further disappointment.
• 16:35
  Speaker 3: And as we continue to see elevated interest rates, it's
• 16:38
  Speaker 3: just making the situation worse.
• 16:40
  Speaker 5: As we close out, I've got a minute left or so,
• 16:42
  Speaker 5: is there just a unifying theme that connects all these
• 16:46
  Speaker 5: that investors should be aware of? Yeah.
• 16:50
  Speaker 3: You know, I think through some of these elements, there's
• 16:53
  Speaker 3: clearly a consumer aspect. I mean, there is an underlying
• 16:58
  Speaker 3: element to that with Coke, but I bring it back
• 17:00
  Speaker 3: to some of the other U.S. ideas we have in here.
• 17:03
  Speaker 3: If you have a high-end product that's doing well, that
• 17:08
  Speaker 3: seems to be doing fine. IMAX, for example, you know,
• 17:11
  Speaker 3: they're on the heels of the Odyssey success. And we
• 17:16
  Speaker 3: think that there's further upside to those estimates. If you
• 17:19
  Speaker 3: are facing, however, the lower end of the market, then
• 17:26
  Speaker 3: it's problematic. That plays through over here in terms of
• 17:28
  Speaker 3: the housing business, but it also impacts Domino's Pizza, which
• 17:32
  Speaker 3: on the one hand is going against some pretty tough
• 17:35
  Speaker 3: comparisons last year. But there's also this issue of a
• 17:40
  Speaker 3: lot of competition and people downsizing what they're willing to purchase.
• 17:43
  Speaker 3: So it's pressuring Domino's.
• 17:45
  Speaker 4: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
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