A company that has revenues and is extremely well-capitalized gets debt finance. That is not news. That is totally commonplace. "Shouldn't all their capital come from investors?" No. Companies at all stages typically use a mixture of debt and equity finance.
His EV calculation is completely flawed also. Debt finance is typically senior to equity in recovery at bankruptcy, so when JPMC do this analysis (and believe me they did this analysis) they are not assuming 0% recovery. They are thinking it is most likely in a bankruptcy that they get some x>0% recovery.
Finally, banks don't think about their relationship with a multi-billion-dollar company in terms of the ROI on a single revolving credit. (even though this will in all likelihood be very profitable for JPMC). They think about how giving this revolving credit makes it more likely they get advisory on any future bond issuance and I-banking work when OpenAI want to do takeovers, and a foot in the door at IPO time etc.
Yeah, I thought it was weird right away too, but brush it off as a tech blog... but then I realized it's actually a finance website. Ruins the credibility of the website instantly.
The $4B revolver will likely sit undrawn. When it gets drawn, there usually a specific plan to reduce it back to zero. It's not for building data centres, a revolver typically used just for timing differences like a credit card is used (and the lenders will be paying attention). Also, when things get bad, there are covenant triggers which would allow lenders to renegotiate.
The other part is that it's a revolver, not a bond.You only pay what you use. It's not uncommon in VC. If you need to buy stuff now but your next round is in 2 months the revolver saves your ass. And once you raise you pay it back.
Agreed. Crucially, it doesn’t ask _why_ they want this line of credit and assumes it’s to serve as an equal source of financing as capital investment. Yet, I think the reason for this credit line is rather straight-forward risk management: it is not at all inconceivable that any one of the numerous legal proceedings the firm is already entangled in (to say nothing of ones surely to come) conclude in settlements that would be existential without it. If I were an OpenAI investor, I would certainly want a story for how they would handle such an expected emergency. A few other high-growth startups are publicly known to have obtained such a line of credit at a similar stage.
I'm going to paraphrase Matt Levine here -- the central trick of bankers is to divide debt into tranches of claims of different seniority, with different rates of return. Debt is a way to borrow money from investors where they actually have a generally low rate of return specified and have a senior claim on being paid back in the case of insolvency. Stocks are a way to borrow money for investors where they get basically _nothing_ in the case of insolvency, but they expect a higher return from either dividends or stock buy backs, or just from company growth. Different investors have different goals in terms of risk/reward for what they want out of a company they invest in, and providing investors more options unlocks more opportunities to raise money.
Convertible debt is very different: if you do the same (simplistic) analysis as in the article, it behaves almost like the equity example, not the debt one.
As a shareholder, thanks for going the convertible debt route! I like the fact that the company became profitable but the call option component of the previous round of "senior convertible notes" expired out of the money.
Comparatively speaking, I don't know why investors won't touch DOCN with a 10-foot pole, but I will gleefully reap my returns from dividends and stock buybacks when DOCN laps AWS in 20 years with better services maintained by better engineering staff.
It stems from the relatively low capital requirements of tech companies relative to other industries (pre-LLM). Now that this factor has changed we see them rapidly adopting debt financing for their capital intensive LLM projects.
> stems from the relatively low capital requirements of tech companies relative to other industries (pre-LLM)
Not really. Tech, including low fixed-cost software, has been tremendously capital intensive for decades. Early-stage start-ups lack the cash flows to fund debt. But post-Series B companies raising equity are generally doing so for idiosyncratic reasons, e.g. capital sponsors being concentrated in equity for historical reasons, valuation escalators and capital denial to competitors.
I don't think you understand what capital intensive means. Many tech companies are started out of their founders apartments for essentially 0 startup cost and from here the only serious costs are salaries and AWS. There's a reason that tech founders get so much richer than founders in other industries and that reason is because the minimal capital requirements allow them to sell off so much less of the company before reaching massive scale.
> don't think you understand what capital intensive means
I may have missed something in my career on Wall Street, as a founder and in VC.
(Being wrong is fine. Being confidently wrong is dumb.)
> Many tech companies are started out of their founders apartments for essentially 0 startup cost
You’re mixing up fixed costs and capital. Both fixed and operating costs consume capital. (We call the latter working capital.)
(You may also be mixing up PP&E and capital.)
> a reason that tech founders get so much richer than founders in other industries and that reason is because the minimal capital requirements allow them to sell off so much less of the company before reaching massive scale
This is wrong. Obviously wrong.
Tech founders get richer because their companies get bigger. Apple, Tesla, Google and Saudi Aramco have massively different capital requirements. Their owners (and founders/founding lineages) are in the same ballpark.
Similarly, most family businesses never sell equity until they sell the business. And most tech founders don’t have a majority of equity after a couple rounds.
Neither a billion isn't small no matter how vague you want to make it, yet, we label startups with this valuation as unicorns. So where is the boundary? 10 billions? 100? 1000?
1) If OpenAI goes bankrupt, JPMC will get more than 0 on their loan. For some reason I have yet to comprehend, when I was sitting on a credit desk pricing CDS, they always used 40% as the recovery rate. I ran into a credit guy who taught finance at two very famous universities, and he also immediately said 40%, with no explanation.
2) It's a revolver, it's not all being used
3) If things go great and OpenAI ends up buying smaller guys or getting bought out (probably MSFT?) then JPMC will be right in there with those young bankers who don't sleep. They will pull in many many millions in fees with very little expense.
4) If things don't go great, OpenAI will be looking for more financing. Guess who will help them?
5) It's really only in case there's an Enron things are terrible for JPMC. Like if it turns out the whole thing was a bunch of guys in India answering every ChatGPT query, something like that. If there's actually an AI business, and despite JPMC's history of due diligence misses (Javice case) that's probably the case, then there's deals to be done.
The 40% historical recovery rate comes from a long line of companies that actually built things and produced products, often in factories with equipment in them... and a warehouse full of product that didn't sell at full price.
If OpenAI folds, there are two basic scenarios:
- one: the LLM crash has come, and OpenAI barely has any material assets. Microsoft isn't putting more money into it, and they won't take it over -- people with seven figure salaries will be looking for six-figure jobs.
- two: somehow, only OpenAI crashes, and the rest of the LLM boom continues. This likely involves OpenAI being extraordinarily outcompeted, so it's a long slow decline as contracts run out and are not renewed. 40% is probably high, but if JPM can retract the revolving debt before it all goes out the door, not ridiculously high.
> the LLM crash has come, and OpenAI barely has any material assets
They have claims on the use of assets via their leases.
More directly, if AI crashes in the next 2 years, they get bailed out. Between OBBA, tariffs and immigration enforcement, the American economy less AI is probably already in a recession. Trump and the GOP would get desperate if the political leash the AI boom has granted them is shortened. Borrowing another few trillion dollars to fix it would be worth the gamble.
The American economy minus AI is most definitely in a recession. The common people are struggling to buy groceries. Wages have been stagnant and prices go up and up.
The problem is that AI is ultimately a luxury good. Even at it's currently ultra-subsidized rate, it's hard to justify. If it gets any more expensive, no consumers will buy it.
Which might be fine, if we turn to enterprise. Except: a problem. Companies produce goods, which people then buy. AI can replace labor maybe, but it can't replace consumers.
You are much more optimistic than I am about the attention the present regime pays to anyone who wants money from them, versus those who are promising them planes and donations and outright cash bribes.
Bluntly: nobody in the Trump administration has the ability to soft-land the economy. When the ship is undeniably sinking, the rats will flee.
> If OpenAI goes bankrupt, JPMC will get more than 0 on their loan.
Depends what other creditors OpenAI has, and the priority on their claims.
>For some reason I have yet to comprehend, when I was sitting on a credit desk pricing CDS, they always used 40% as the recovery rate.
That doesn't mean its the actual amount they will recover, just that it is sonething like the expected average for a large class given the criteria JPMC uses when entering such a position and the anticipated range and distribution of outcomes when those firms fail.
This, and thanks to certain loopholes in the U.S., it is possible that JPMC may receive nothing at all. Depending on the jurisdiction, companies have been known to sell off all assets for near zero and eventually leave creditors and investors on the hook.
Do you have examples of this? I would like to learn more.
A quick Google search tells me:
> Generally, a U.S. company can sell assets below cost, as long as the transaction is transparent, conducted in good faith, and serves a legitimate business purpose.
The problem with recovery rates is that they different by orders of magnitude across different borrowers and credit products (for example car loans are around 70%, industrials are a bit loweer at 40%-50%, and high yield credit cards are single digits) so if you have a random sample of credit products in a portfolio it will approximate 40%. What generally happens is that the bank will sell it off to a specialist distressed investor long before the bankruptcy event so 40% is both wrong and not a horrible number to go by.
If Softbank buys OpenAI, they don't just sign a contract and send a cheque. They need powerpoint slides from JPMC to make the deal happen, and that costs money.
As we've seen from the NVidia/Oracle and AMD deals, there is more than one way to structure investments. Financing doesn't just mean "deposit cash into my bank account:.
> 3) If things go great and OpenAI ends up buying smaller guys or getting bought out (probably MSFT?) then JPMC will be right in there with those young bankers who don't sleep. They will pull in many many millions in fees with very little expense.
Which is exactly the same argument that the author made, no?
> Cost: $1,000
Case 1 (90%): OpenAI goes bankrupt. Return: $0
Case 2 (9%): OpenAI becomes a big successful company and goes 10x. Return: $1,000 + 5% interest = $1,050
Case 3 (1%): OpenAI becomes the big new thing and goes 100x. Return: $1,000 + 5% interest = $1,050
The actual math is that if OpenAI succeeds, then there's a nod and a wink that JPM will land the lead role in the IPO or any mergers/acquisitions, which translates into huge fees.
a company with 800 million weekly active users, and only losing $10B-$15B before implementing ads - which IMO is coming fast and soon to the LLM world - i would never calculate a 90% chance their shares end up at $0 before an exit option
This is the easiest money and best relationship JPM could imagine
Yahoo is a disingenuous parallel here. Yahoo lost because they didn't correctly embrace their market position in what's otherwise the very ripe industry of search engines. Search engines created the 4th most valuable company in the world (Google).
We don't know how ripe OpenAI's industry or market position is, yet. Yahoo knew what they had lost pretty early onto its spiral.
Also, if OpenAI goes bankrupt, you _much_ prefer to have loaned them money to having bought shares in the company. People who own shares in a bankruptcy only recover anything after all the people that loaned them money are paid back in full.
I’m pretty sure the banks view the intellectual property value as the security for their loan not the potential profits of the company.
I’ve worked for enough startups that even if your company folds and goes bankrupt with no business plan the ip generally can easily cover the outstanding loans.
I think that's got to be highly variable. I've worked for a couple of startups that went under and the IP had basically zero value. Who is going to pay for a failed implementation of a failed idea?
Well, the question isn't what OpenAI's intellectual property is worth right now, or what you expect it to be worth, but what it is likely to be worth after OpenAI has become insolvent (and few/none of the current employees are working on it). The most likely causes for it becoming insolvent are probably that another company out-innovates them, or that the revenues never come in (despite OpenAI being a market leader). In either case, OpenAI's IP is unlikely to be sufficiently superior to the competition's to warrant a large premium.
I am not sure how differentiated OpenAI's IP is, so I don't have a strong opinion, but it seems to me that OpenAI is worth a lot more as a package than it would be as a collection of pieces.
Their web-application is worth $200,000. The software of the training infrastructure is worth perhaps $2M; the inference infrastructure is worth perhaps $500,000. Their hardware is worth nothing in 3 years. Their B2B relations are worth perhaps $5M. The "data" they have is worth nothing in 5 years, because a sufficiently smart model will be able to learn without human feedback.
They have no moat. So, how do you get to $4B?
I think the models are wrong way too often for relatively simple queries, so unless they give a secret prompt like "be wrong a lot in the free version" to users, it's basically worthless.
> I’m pretty sure the banks view the intellectual property value as the security for their loan not the potential profits
Naa that takes too long to get any value from. If openAI goes pop, their IP isn't going to be worth much, because it'll die from competition, or the economy going to shit.
Like he said Microsoft is the most likely person to want to acquire the IP and employees. Amazon could be a potential second. Google paid 2.4b to license Windsurfs technology, OpenAI would go for far more.
Microsoft already has rights to the IP. If OpenAI goes bankrupt, they can hire the employees without buying the company (similar to their offer in 2023 when the board tried to fire Sam Altman). Although if OpenAI goes completely bust, that probably means interest in AI across the industry has tanked, so an acquihire makes little sense over just hiring available talent on the market.
That was one of the key parts of Silicon Valley Bank's business model. And that part worked pretty well: their collapse was caused by mismanaging interest rate risk and they never took many losses on loan defaults.
At this point I would rather consider this kind of large loans to be "political" than "technical", that is say, they may or may not make sense in terms of $$$, but may make a lot of sense in other areas.
> This Reuters article claims OpenAI is going to generate $3.6 billion in revenue this year, but the costs will lead to a loss of more than $5 billion. It expects a major revenue jump next year to $11.6 billion
The article linked[0] is from last year.
A recent article[1] from this year says "OpenAI looks to meet its full-year revenue target of $13 billion and a cash-burn target of $8.5 billion, the report added."
Yeah, this is a pretty major error. They already have a higher revenue than the article's quoted "jump next year" (which was this year and was an underestimate).
Don't worry, people in the thread are now going to pivot to "Uhh, those numbers don't matter! Here's an opinion from some tech blog about the financials of a private company!"
The doomerism on OpenAI finances is unfounded IMO. They will survive and be a large company at this point. The big question marks are on just how big, when, and the cost to get there. If they lost all financing tomorrow, they'd deploy a cheaper model and slow down research. I don't have a hard time imagining that they could pull off a 75% reduction in costs in such a scenario.
No one is OpenAI’s financing while anthropic et al. keep raising. The big risk is that future innovation fails to live up to the hype and they can't afford full priced GPUs or the proposed datacenters.
They've made 8 billion this year with 800 million users, or $10 ARPU (average revenue per user). They have committed to spend a trillion dollars over the next 5 years. I'll call it $200 billion/year, with a (rounded-up) billion active users, they would need to make $200 ARPU . For comparison Meta has about $50 ARPU. I'm having a harder time finding Google's ARPU, but with $350 billion in revenue last year if they made $200 ARPU they would have less than 2 billion users (I can't find how many user's they actually have but I would bet money it's a lot more). They would have to be making 3-4x more money per user than two of the largest companies in the world for this bet to work out.
I don't see how this is going to work out for them.
I'd doubt that they intend to spend a full trillion. The spend commitment is such that no one else can plausibly outspend them. If you take the position that spend is correlated with outcome - then they are on a positive track to win. The existence of this spend commitment will motivate some market players to exit the market.
I think I agree here. I don't have all the numbers, but I'm under the impression that OpenAI spend is much higher than their competitors, with Meta trailing behind them. I don't think Anthropic or Xai is spending nearly as much as OpenAI, yet ChatGPT performance is not scaling with spend. Their moat seems to be entirely based on having the most users.
Or the banks own the most valuable, exclusive, world-changing IP in decades. Nobody else really has a shot at that IP besides a few other extremely-capitalized AI companies.
I'd loan them the money for that opportunity. It's possible that the IP will somehow turn out to be worthless; I don't know what will happen, but I am confident ruling out worthless. Could the lender could refuse Microsoft's payment - from a minority shareholder? OpenAI could accept Microsoft's money and pay the bank; with that offer, OpenAI would have leverage to play Microsoft and the lender against each other.
OpenAI could go bankrupt for many reasons having nothing to do with the value of their IP. For example, they could overinvest in developing it - a positive outcome for the lender.
There are other American companies too, but the list of AI projects anywhere that operate on the highest level, and have the capitalization for the massive data centers (apparently) required to reach the next level, is small and very exclusive.
Big banks will give sweetheart loans to startups and officers of startup for the opportunity to take a company public. They’ll make billions on the IPO.
I used to work in IB and I'm not that surprised:
* Revolving credit facilities tend to have the highest priority of corporate debt when it comes to going after assets in the event of default
* RCFs are often about relationship management rather than making money as others have pointed out
* Credit agreements (that set out the terms of RCFs) often include a lot of triggers/rules about how much can be drawn and at what rate to protect lenders. e.g. If revenues are below Y you can only borrow Z
I'm no expert in corporate finance, but whether or not OpenAI goes bankrupt feels like the wrong question to me (in thinking about this loan). Wouldn't a bank be more concerned with (1) the likelihood that OpenAI can raise another round of financing from which to repay the bank, and (2) the likelihood that OpenAI will have assets worth >10B when/if they do eventually declare bankruptcy?
The bank's risk seems quite a bit lower than the VC's risk.
Also 5% would be a ridiculously low rate for this sort of corporate finance. You would expect more like 8-12% I think?
Plus the post seems to only include 1 year of interest.
Unless we know the terms, I don't think we can necessarily calculate EV from JP Morgan's perspective. I would say that they aren't usually carelessly giving away money though... They probably have terms where they can get out early if OpenAI's position weakens etc.
I agree but had different questions. TFA mentions the consideration of whether failure cases are correlated, but of course if OpenAI wins big, there's a good chance this directly or indirectly creates much instability and uncertainty in many other loans/partners. What's the EV on whether that is net-positive considering this is a loan at 5% and not an investment?
On the other side, if OpenAI crashes hard, is it really such a sure thing that Microsoft will be the on the hook to pay off their debts? Setting aside whatever the lawyers could argue about in a post-mortem, are they even obligated to keep their current stake / can they not just divest / sell / otherwise cut their losses if the writing is on the wall?
JPMorgan Chase might not mind ending up owning much of OpenAI's IP if they default on the loan. Banks have largely been locked out of making equity investments in OpenAI so far so perhaps they see this as the next best alternative?
All that text to somehow not realize that large companies routinely take on banking relationships, including debt, specifically to start cultivating the various relationships/trust they'll want access to in the future. Apple and Microsoft both did this at massive scale even though they didn't have to, in order to prime the debt markets in regards to relationships/trust.
The loan amount is small & revolving to be too risky for a bank the size of JPM, but undue optimism about OpenAI also isn't justified.
Google, Amazon, Apple, MSFT, Meta & Nvidia didn't face "China risk", but AI firms do. As Tik Tok saga has proven, the days of running large losses for years, to recover it all back in IPO, and monopolize thereafter, may be over.
China might win the AI race and force the hand of USG for yet another national security imperative, to expropriate foreign assets.
> What happens if we instead put our lender hat on? [...] Case 1 (90%): OpenAI goes bankrupt. Return: $0
Even for a very simple model, this seems unrealistic. Isn't the whole point of a loan that your liable to pay it back if you're in any way able to? (very roughly)
So the bank would have claim to some of OpenAI's existing assets even if they went bankrupt. The probability that they not only go bankrupt but also have no assets left at all would be much lower.
> However, there's no speculation about what their earnings will be because they're currently selling their services below cost and there isn't really any story as to how they'll turn this profitable.
Do we know they're selling their services below cost? I'm pretty confident they're making money on inference and burning through large piles of cash on capex and research.
Banks are pretty chill about these things. I've been controller on something with a billion+ revolving facility myself.
You can basically throw the entire analysis out on a single point:
>Case 1 (90%): OpenAI goes bankrupt. Return: $0
It won't be $0. Creditors have liquidation priority and banks make very sure they're confident in the quality of the collateral before handing out billion dollar facilities.
This author obviously has no experience with investment banks.
OpenAI is massive, fairly risky, associated with Microsoft, etc. all true. What matters to JPM is potential future business. There’s potentially an enormous IPO in the future. The credit line is just good business. They are fostering the relationship.
I'd suspect the revolver has conditions that limit the circumstances under which it can be drawn. A public company is required to file the details of the facility but in this case... suspect OpenAI has gone for the headline but the details matter.
I've determined that it's a bad idea for me to write an article like this because every time I've seen one of these they're absolutely riddled with errors and incomplete information. I have no doubt I'd do worse!
They don't need an IPO. "Private equity funds" are already being offered to retail investors. Less oversight and a way to pass the risk to gullible retail investors.
Who are you?
Hi, I'm the author. I've been dabbling in investing since 2015 and I decided to get more serious about it in 2023.
Is this financial advice?
No. In fact, everything you read here is be half-baked by design. If it were fully-baked, then I wouldn't have felt the need to write about it in order to distill my thoughts.
It's not just strange, but completely regarded, _assuming_ no more information, but since it's JPM, of course they know more, which probably make it a lot less regarded.
I would not be happy with this trade if I had any $JPM.
I mean, let's be honest there. This is much different than the blockchain bubble, in which 2/3 of the population is actually utilizing or interacting with AI daily.
While, yes, it's overhyped and takes up too much of the spotlight, it isn't going anywhere and is going to continue to be a staple in our lives moving forward, and will continue to increase in impact as it improves.
Blockchain will always be blockchain, and it was absolutely a bubble. Will it improve? Sure. Will it ever be as impactful to the everyday individual as AI? Maybe, but most people will not know or care. It will mostly be a passive experience.
AI will/has fundamentally changed how we work in the matter of 3 years. So, financial system jumping on board this, is much safer than jumping onboard crypto hype trains.
(I'm not saying crypto is bad / is a bad investment, but lots of crypto and ai startups are both trash, well, most startups are trash, I say that as a founder who has had many trash ideas)
"AI will/has fundamentally changed how we work in the matter of 3 years"
The past 3 years or the next 3 years or 1.5 years both ways?
It hasn't really done that yet. The work from home zoom meetings has made a bigger impact. Maybe in a few years? Its on par with the metaverse at this point.
> I mean, let's be honest there. This is much different than the blockchain bubble, in which 2/3 of the population is actually utilizing or interacting with AI daily.
You do remember that by the time the blockchain bubble burst, literally everyone and their mother were "interacting" with it?
> AI will/has fundamentally changed how we work in the matter of 3 years
For people in bullshit jobs creating workslops, yes its probably an absolute blessing. Enjoy it while it lasts.
It was a waste of time to read. TLDR is if OpenAI were a random startup it’d be strange but because it has credible shareholders that stand to lose in a bankruptcy (weirdly constructed argument), it’s probably safe enough.
Duh. Basically the author wrote a word salad to say the bank calculated the probability of them losing money would be lower than what the author pulled out of their ass at the beginning of the article, refuting their own hypothetical point.
The government(and taxpayers I assume) actually made out pretty well on the bailout loans. Considering the government still owns 99% of Fannie Mae and Freddie Mac, after retaining billions in profits over the last decade and a half.
Yes, US Treasury has gotten profit from Fannie/Freddie. However, there is concern from OMB that risk is not properly being calculated and thus in event of small housing crisis, US Government would have to back stop them again and possibly wipe out any profits gained.
The primary bailout during the 2008 housing crisis went to homeowners, not to banks through TARP. The secondary bailout was to banks, the Fed bought up trillions of dollars worth of garbage housing assets. That homeowner bailout was never paid back: it damaged the economy in the form of dollar debasement (ie lower purchasing power for everybody holding dollars). The Fed increased its balance sheet 400% in six years, and never looked back. The housing bailout was trillions of dollars, meant to keep that gigantic housing asset pool inflated artificially. We did it again during Covid, with another gigantic consumer bailout.
See: gold at $400 vs gold at $4,000. Aka the destruction of the USD.
The covid response was what the occupy protests told us the bailouts were. Never has there ever been a bigger transfer of wealth to the 1% than during the covid era.
"Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that.""
He's calculating EV above cost. If you look at the calculation, the first term is -1000 to account for the initial investment. So the final value is tell you that you got back the initial money plus 900 more.
People have to stop saying this with NO evidence to back it up. And by evidence I do not mean random investors opinions, anonymous "insider" infomation, etc. Give numbers. Saying the same thing 1000x doesn't make it true.
What do you mean "no evidence"? The Information had just published a concrete analysis showing the OpenAI is spending the threefold of what they collect in revenues. And many other bloggers, Ed Zitron being one of the better known ones, have been writing about it forever.
>A recent article[1] from this year says "OpenAI looks to meet its full-year revenue target of $13 billion and a cash-burn target of $8.5 billion, the report added."
Well, OpenAI "looks to" a lot of things (AGI by the end of 2025 was also one stated goal), but unfortunately, facts are something else. Your artical sums up the costs for running ChatGPT to 2.5B + another 6.7B for "research and development", a.k.a. bunch of PhDs tweaking the model weights - so that is a total of what, roughly 9B USD? Congrats, their burn for the first half was not 3x times the revenue, it was "only" slightly over 2x times that. I am not sure where did they pull the projection for ~13B revenue for the whole year, if they generated only a third of that in the while first half of it? Maybe from that latest pivot, erotica-ChatGPT, but otherwise...no.
No nothing to do with that. Read up on the report by The Information about how much OpenAI spent in the first half-year vs. how much they collected in revenues, maybe that will clear things up ?
This kind of comment isn’t helpful. Of course, people around here also want AI to succeed for various reasons. Everyone has an agenda. Judge based on the merit of the argument.
The issue is that motivated arguments aren’t honest. It becomes like arguing about politics or religion.
If it turns out that OpenAI becomes wildly profitable, they’ll just shift to some other argument about the environment or the specialness of human thought or whatever.
But they aren’t profitable, and there’s no clear path for them to become profitable. The people you’re railing against aren’t exactly wrong to be skeptical.
Surely the burden of proof lies on the more unbelievable side?
Show me how a company setting never before seen piles of money on fire is profitable. Until someone can i'll happily keep claiming they're unprofitable.
The claim is that they are profitable -- all businesses are unprofitable until proven otherwise. That's the null hypothesis for business profitability. The null hypothesis is what must be disproven with evidence.
Right, I am saying there is no evidence they are profitable, so we fall back to the default, that they are unprofitable.
Indeed, the other poster seems right: "The burden of evidence is on the side of the person making the claim" is simplistic and reductionist. "The burden of proof lies on the more unbelievable side" is more appropriate.
Taking an example: If I said the earth was not flat, and someone else told me to prove it, that proof would be unnecessary, because the earth being flat is more unbelievable than the alternative.
>Taking an example: If I said 1+1=2 and someone else told me to prove it, that proof would be unnecessary, because 1+1=2 is more believable than any alternative sum.
A company that has revenues and is extremely well-capitalized gets debt finance. That is not news. That is totally commonplace. "Shouldn't all their capital come from investors?" No. Companies at all stages typically use a mixture of debt and equity finance.
His EV calculation is completely flawed also. Debt finance is typically senior to equity in recovery at bankruptcy, so when JPMC do this analysis (and believe me they did this analysis) they are not assuming 0% recovery. They are thinking it is most likely in a bankruptcy that they get some x>0% recovery.
Finally, banks don't think about their relationship with a multi-billion-dollar company in terms of the ROI on a single revolving credit. (even though this will in all likelihood be very profitable for JPMC). They think about how giving this revolving credit makes it more likely they get advisory on any future bond issuance and I-banking work when OpenAI want to do takeovers, and a foot in the door at IPO time etc.