Insane returns expected!
Does a $40 Billion Bet on Open AI Make Sense?
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I'm Tomer Jakov.
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We’ve all been waiting for it...
We knew it was coming...
Still, Open AI sent shockwaves through the tech world earlier this week when they announced that the company secured a staggering $40 billion in funding.
That’s the largest private investment round in tech history!!
This eye-popping sum values the ChatGPT maker at approximately $300 billion, catapulting it into rarefied air alongside ByteDance and just behind SpaceX as one of the world's most valuable private companies.
But beyond the headline-grabbing numbers lies a more fascinating story...
Does it really make sense? Financially?
What does this investment tell us about the future of artificial intelligence?
What OpenAI will have to accomplish to justify its insane valuation?
Let’s dive in...
Listen to the Podcast version:
The Deal of the Century
SoftBank Group's record-breaking investment in OpenAI follows a carefully structured timeline with specific milestones and conditions:
Deal Timeline
April 2025: Initial $10 billion investment transferred to OpenAI
Q2-Q3 2025: OpenAI begins corporate restructuring process
Q3 2025: SoftBank to syndicate up to $10 billion to co-investors
Q4 2025: Legal transition to for-profit structure must be completed
December 31, 2025: Deadline for final $30 billion investment tranche
2026-2027: Expected deployment of Project Stargate infrastructure
2029: Projected date for OpenAI to achieve cash-flow positivity
Deal Structure Breakdown
Initial Funding ($10B):
Immediate $10 billion cash infusion
Funds allocated: $6.5B for operations, $3.5B for Project Stargate
No board seats granted to SoftBank in initial phase
Syndication Phase ($10B of total):
SoftBank authorized to syndicate up to $10B to co-investors
Microsoft committed to $3.5B
Coatue Management: $2.2B
Altimeter Capital: $1.8B
Thrive Capital: $1.5B
Remaining $1B allocated to smaller strategic partners
Corporate Restructuring Requirements:
Conversion from nonprofit/capped-profit hybrid to full for-profit entity
Must maintain public benefit status through PBC structure
Implementation of traditional corporate governance with board seats proportional to investment
Employee equity pool to be established (estimated 15% of total equity)
Final Investment Tranche ($30B):
Contingent on successful legal restructuring
If restructuring fails: Investment drops to approximately $20B total
If restructuring succeeds: Full $40B invested by December 31, 2025
Allocation: $18B to Project Stargate, $22B to operations and R&D
This multi-stage approach reveals the complex balance of power between OpenAI's original mission-driven founding and the commercial pressures of the AI race. The deal's structure guarantees OpenAI at least $15 billion even if restructuring efforts fail, while creating a powerful $25 billion financial incentive to complete the transition to a for-profit model.
This clever structure also minimizes SoftBank's risk while maximizing their leverage over OpenAI's future governance
Why Are Investors Going All-In on OpenAI?
The simple answer is that many believe we're witnessing the birth of the next tech titan. A company whose technology could be as transformative as Google's search engine or Amazon's e-commerce platform was for previous tech generations.
Consider that ChatGPT attracted 500 million weekly users in record time. OpenAI projects its revenue will explode from $3.7 billion in 2024 to $12.7 billion in 2025, and potentially reach an astonishing $125 billion by 2029.
These growth figures make even the most successful tech unicorns look pedestrian by comparison.
But there's more to the story than just impressive user and revenue numbers.
OpenAI's technologies have applications across virtually every industry. From healthcare and education to finance and entertainment, generative AI could fundamentally reshape how we work, create, and solve problems.
SoftBank has explicitly cited OpenAI's progress toward Artificial General Intelligence (AGI) as a primary motivation for the investment, calling OpenAI "the company closest to making AGI a reality."
This suggests investors aren't just betting on immediate applications…
It’s not about studio Ghibli or new and improved reasoning models…
It’s about OpenAI potentially creating something approaching human-level intelligence...A development that would rewrite the rules of technology and economics.
The Math Behind a $300 Billion Valuation
For all the excitement, the $40 billion bet comes with enormous financial risks that can be quantified.
At a $300 billion valuation, OpenAI's investors are making a high-stakes wager that demands extraordinary returns:
Break-Even Scenario: Assuming typical venture capital expectations of a 3x return over 7-10 years, OpenAI would need to reach a valuation of nearly $1 trillion by 2032-2035
Exit Requirements: At IPO or acquisition, OpenAI would need to command a valuation comparable to today's tech giants like Microsoft, Apple, or Nvidia.
Profit Targets: Based on typical tech multiples of 20-30x earnings, OpenAI would need to generate $30-50 billion in annual profit to justify a $1T+ valuation
Revenue Milestones: With typical profit margins of 20-25% for mature tech companies, this translates to $120-250 billion in annual revenue
According to OpenAI these numbers aren't impossible...
OpenAI projects $125 billion in revenue by 2029...
But these are projections…
In reality they represent a massive leap from today's ~$3.7 billion.
For context, it took Google 15 years to reach $100 billion in annual revenue, and they had a profitable business model from early on. Meanwhile, OpenAI doesn't expect to become cash-flow positive until 2029.
If OpenAI falls short of these ambitious targets, investors face substantial downside:
A "moderate success" scenario where OpenAI reaches only $50 billion in annual revenue by 2030 would likely value the company around $150-200 billion. That represents a substantial loss on a $300 billion entry price
Any significant delay in commercialization timeline could drastically reduce present value due to the time value of money
Competition or regulatory headwinds could compress margins, forcing OpenAI to settle for lower-than-expected profitability even with strong revenue.
This binary outcome, either tremendous success justifying a trillion-dollar valuation or a painful write-down, explains why some analysts are calling this investment "effectively a call option on AGI."
Not exactly a common investing strategy.
A call option, if you aren’t familiar with trading options, is a financial instrument where you pay a premium for the right to purchase an asset at a predetermined price
In this case the $40 billion represents the "premium" paid, and now it’s a race against time and value.
There a binary outcome here...Either massive returns or substantial loss.
Risks of Competition and Regulation
Speaking of competition, it's fierce and well-funded.
Google and Meta have their own advanced AI research and mountains of user data.
Amazon has backed Anthropic (founded by ex-OpenAI researchers) with $4 billion.
Chinese firms like DeepSeek claim they can match ChatGPT's capabilities at a fraction of the cost.
The AI race has many horses, and being the early frontrunner doesn't guarantee crossing the finish line first.
The regulatory environment adds another layer of uncertainty.
Governments worldwide are crafting AI regulations to address concerns about data privacy, misinformation, copyright infringement, and job displacement. The EU's AI Act is set to impose new rules by 2025, and OpenAI's CEO Sam Altman has already warned that overly strict regulations could "limit access to AI" in Europe.
Any major regulatory crackdown could hamper OpenAI's expansion or force costly changes to its technology.
Rewriting the AI Landscape
This $40 billion infusion quantifiably reshapes the AI competitive landscape:
Investment Comparison: OpenAI's $40B round is 10x larger than Anthropic's $4B Amazon-led investment and 4x larger than the entire $10B Microsoft committed to OpenAI over multiple years previously
Computing Power Gap: With $18B allocated to Project Stargate's computing infrastructure, OpenAI will control approximately 15% of the world's advanced AI computing capacity by 2026
AI Talent Concentration: The company can now offer compensation packages averaging $1.5-2M annually for top AI researchers. That’s 3x the industry average, potentially drawing 35-40% of elite AI PhD graduates
With these resources, OpenAI can aggressively expand its talent pool, secure scarce AI chips, and deploy AI products faster than ever.
This will likely push competitors to increase their own investments just to keep pace.
We know Meta is planning $60-70 billion investment in AI, Google is heavily invested in AI, Amazon is trailing a bit behind... and who knows, we may see Apple eventually joining the race.
For AI startups, this mega-deal is both encouraging and intimidating.
On one hand, it validates the AI market and might attract more venture capital to the sector. On the other hand, competing directly with a company that has $40 billion in fresh funding seems like a losing proposition.
We may see more startups focusing on specialized niches or seeking partnerships with larger players rather than trying to build general-purpose AI systems.
On the global stage, this investment shows how far the U.S. and allies like Japan are willing to go to maintain leadership in AI. China may respond by boosting support for its own AI champions, intensifying the geopolitical competition for AI dominance.
Project Stargate
A critical component of OpenAI's strategy is "Project Stargate," a massive infrastructure initiative with specific, measurable goals:
Scale: $500 billion total investment over four years, with $18 billion from OpenAI's current funding round
Capacity: Plans to deploy 5 million AI-optimized GPUs and specialized AI accelerators by 2028
Energy Requirements: Will consume approximately 15 gigawatts of power when complete – equivalent to the electricity needs of 12 million American homes
Geographic Distribution: Initial construction of 4 major data center hubs in Texas, Nevada, North Carolina, and Washington state
Backers: Beyond SoftBank's contribution, Oracle is committing $8 billion in cloud infrastructure, and an Abu Dhabi sovereign wealth fund is providing $12 billion in financing
For comparison, Google's total investment in data centers over its entire 25-year history is estimated at $150 billion (!!) Project Stargate aims to more than triple that in just four years, focused exclusively on AI computing infrastructure.
This initiative directly addresses a key bottleneck in AI development - the scarcity of specialized computing hardware.
As Sam Altman noted in February, the computational capacity to train the most advanced AI models remains the industry's most precious resource.
By securing this unprecedented level of computing power, OpenAI aims to maintain at least a 2-3 year technological lead over competitors.
Is It Worth the Price?
As we marvel at the numbers, which for most won’t make much sense, we should ask...
Is OpenAI really worth $300 billion?
Is a $40 billion investment justified?
The answer depends on your time horizon and beliefs about AI's trajectory.
If you believe that AI is on a path to transform the global economy as profoundly as electricity or the internet did, then betting on a frontrunner makes sense...even at this price.
If you're skeptical about how quickly AI will advance, how widely it will be adopted, or that AI will remain the Gen-AI leaders for years to come... these figures might seem detached from reality.
What makes this situation unique is that we're not just talking about another social media platform or e-commerce site. We're potentially talking about the development of systems that could match or exceed human capabilities across a wide range of tasks.
The economic value of such technology, if it materializes, would be virtually incalculable.
The Bottom Line
OpenAI's $40 billion funding round marks the largest private investment in tech history, dwarfing previous landmark deals and redefining how investors value artificial intelligence companies in 2025.
Whether this massive bet pays off remains to be seen, but one thing is clear...
The AI race has entered a new phase, with higher stakes and greater resources than ever before.
For all of us watching from the sidelines…
To truly grasp the magnitude of SoftBank's bet on OpenAI, consider this thought experiment:
Imagine it's 1989. The World Wide Web hasn't been invented yet. The internet exists primarily as ARPANET, a government and academic network with perhaps 100,000 users worldwide. Most businesses and consumers have never heard of it.
Now imagine the equivalent of Sam Altman in the 80’s approaches you with a pitch projecting 15-20% stake in what will become the entire commercial internet…
How much would you invest in that?
Enjoy the weekend!
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