Sam Altman’s “Last Resort” Just Became a $1 Billion Business. What It Means for OpenAI’s IPO.
In 2024, OpenAI CEO Sam Altman called the combination of artificial intelligence (AI) and advertising “uniquely unsettling.” He described ads as a “last resort” for the company’s business model. Now that last resort is starting to look like a real business.
OpenAI announced Monday that ChatGPT Ads reached a $1 billion annualized revenue run rate less than 200 days after launch. Annualized run rate means that the business would generate that much over a year if its current pace continued, not that it has already collected $1 billion over the last year.
ChatGPT’s ad reach: 1 billion weekly users in 40+ countries
ChatGPT now has more than 1 billion weekly active users, and OpenAI says tens of thousands of advertisers use its platform in more than 40 countries.
The pitch is that ChatGPT — even more so than the likes of Meta’s (META -0.98%) Instagram or TikTok — has unusually valuable information about what users want at a particular moment. Someone who is, say, comparing products may already be close to making a decision, and OpenAI can sell access to that intent.
Today’s Change
(-0.98%) $-5.68
Current Price
$572.34
Key Data Points
Market Cap
Day’s Range
$569.14 – $578.67
52wk Range
$520.26 – $790.80
Volume
13.4M
Avg Vol
18.5M
Gross Margin
81.75%
Dividend Yield
0.36%
Of course, that’s exactly why Altman originally found the idea unsettling. OpenAI says that the ads are clearly labeled and don’t influence the model’s answers. It also says that private conversations remain private. But if users begin to suspect that ChatGPT’s advice is shaped by the highest bidder — or that the contents of their most sensitive conversations are being used to sell to them — the company could erode trust in its product very quickly.
OpenAI’s Q2 revenue grew just 18% to $6.7 billion as losses widened
The ad milestone arrives as much of the rest of the IPO picture looks less tidy. The Wall Street Journal reported that OpenAI generated $6.7 billion in second-quarter revenue, up 18% from the first quarter, while operating losses grew and margins slipped further.
At its current pace, advertising equals only about 3.7% of OpenAI’s annualized second-quarter revenue, and OpenAI has reportedly told investors it expects $2.5 billion in advertising revenue this year and $100 billion by 2030.
A $1 billion run rate is a promising start, especially given it took just 200 days, but the quoted targets require a completely different level of scale. And there is a substantial risk that ads will erode user growth. No one knows the long-term impacts of serving ads in this format.
And then, of course, there’s regulatory risk. On Monday, European regulators designated ChatGPT a “very large” online search engine under the Digital Services Act. OpenAI has four months to meet additional requirements as its ad platform expands across Europe.
OpenAI targets a $1 trillion IPO despite widening losses
OpenAI confidentially filed to go public in June, although it has not chosen a date. It was most recently valued at $852 billion, but a potential IPO valuation could be as high as $1 trillion.
The investor appetite for an OpenAI IPO seems to be pretty strong, and it’s very possible an IPO at either valuation would be a hit — at least at first. I think once investors get past the initial IPO buzz, they’ll find it hard to look past the massive lossed OpenAI is incurring and the even more massive capital outlays required in the coming years if OpenAI hopes to keep scaling.
