OpenAI IPO faces a cool reception; how to persuade investors with an $850 billion valuation?

Author: Dong Jing

Source: Wall Street Insights

Original Title: Wall Street “Feels Out” OpenAI IPO; Are Investors Not Interested?

OpenAI may still be at least six months away from going public, but the pre-market buzz has already quietly begun. Several investment banks are actively reaching out to public market investors to gauge market sentiment on this ChatGPT parent company’s IPO prospects—and the responses have been far more tepid than expected.

On March 9, according to tech media The Information, insiders revealed that multiple banks competing for OpenAI’s underwriting business have started “feeling out” public investors. The Information interviewed 11 public market investors, most of whom do not yet hold OpenAI shares.

The respondents generally took a cautious stance on the IPO, with key concerns centered on two points: first, unclear profitability prospects—OpenAI predicts it will continue burning cash at least until 2030; second, overvaluation—the company recently raised funds at a valuation of $850 billion, which is 28 times its projected 2026 revenue, far exceeding Nvidia’s roughly 12 times sales ratio.

The report suggests that the “cool” market sentiment reflects deeper contradictions facing what could be the largest IPO in history: investors recognize OpenAI’s leading position in AI competition but remain hesitant about its ability to be reasonably priced in the public market. Meanwhile, the rising strength of competitor Anthropic is further diverting investor attention and enthusiasm.

Valuation Dispute: 28x Sales—What Makes It So Expensive?

OpenAI’s latest funding round valued the company at $850 billion, with participants including Nvidia, Amazon, and SoftBank. This figure has already deterred many public market investors, and the IPO price could be even higher.

Based on expected 2026 revenue, $850 billion corresponds to about a 28x sales ratio. In comparison, Nvidia, regarded as a benchmark in AI investments, currently has a sales ratio of around 12x.

Bob Lang, founder of trading firm Explosive Options, bluntly stated:

“I do believe OpenAI is an excellent company with a strong moat, but I don’t think any valuation on the first day of trading makes sense for investors.”

He indicated he likely would not participate in OpenAI’s public offering, especially given its valuation multiple exceeds Nvidia’s.

Lang also pointed out that the true beneficiaries of this IPO would be early investors holding stakes and massive cloud computing companies—who could cash out through this process.

Jim Chanos, a well-known short seller, used Nvidia as a reference point to question OpenAI’s valuation logic:

“Nvidia essentially monopolizes the market, with rapid growth, high profit margins, and ample cash flow. So why should OpenAI be valued higher?”

Profitability Path: Burning Money Until 2030—Can the Public Market Buy It?

According to reports, OpenAI itself forecasts it will remain unprofitable until at least 2030. This timeline unsettles public market investors, who are accustomed to scrutinizing profitability.

Some investors worry whether the funds raised from the IPO can support the company until it turns profitable, or if it will need to raise more capital later, diluting existing shareholders.

Mark Malek, CIO of Siebert Financial, said that even if OpenAI struggles to turn a profit in the short term, he would consider building a position after the IPO but would do so cautiously—similar to his strategy with Palantir.

Palantir currently has a sales ratio of 49x, with growth far surpassing peers, but Malek believes Palantir’s risks are lower than OpenAI’s because of its more flexible cost structure.

“If Palantir loses a government contract, that’s bad, but they can lay off staff. If you spend five years building a data center, you can’t just say ‘forget it.’ Palantir is like a Formula 1 racing team, while OpenAI is a cargo ship loaded with goods.”

In a January report, JPMorgan analysts noted that OpenAI’s move to introduce advertising within ChatGPT helps retain users, but also observed that after announcing large-scale chip and data center spending plans, customer sentiment toward OpenAI was “mixed.”

Not everyone is just watching—some investors have made it clear they will consider shorting the stock once it goes public, betting that the market’s tolerance for its long path to profitability is limited.

Chanos shares a similar view. His core logic to clients is: “Go long on chip production, short on data center operations.” The point is, running data centers itself isn’t a high-margin business, and OpenAI’s business model heavily depends on large-scale computing infrastructure investments.

Chanos also pointed out that there is a severe lack of detailed financial information on OpenAI, making in-depth analysis difficult. But he expects that once OpenAI files for an IPO, fierce debates about its competitive landscape will ensue:

“Is this a winner-takes-all scenario, or is the market fragmented like cloud computing? Or will one company become the standard like search engines and maintain dominance? Currently, models are still constantly surpassing each other.”

Anthropic’s Disruption: Diverting Funds and Attention from Competitors

OpenAI’s IPO journey also faces potential pressure from competitor Anthropic.

At this week’s Morgan Stanley Annual Technology Conference, Anthropic CEO Dario Amodei revealed that the company’s annualized revenue run rate has doubled to $20 billion. Recently, Anthropic completed a new funding round, valuing the company at $380 billion, with strong sales momentum for enterprise AI tools like Claude Code.

The Information previously reported that Anthropic expects its costs for training and operating AI models over the next few years to be significantly lower than OpenAI’s. Some investors are beginning to believe that, thanks to its success in the enterprise market—where clients are willing to pay premiums for AI services—Anthropic’s long-term profitability could surpass that of OpenAI.

As Anthropic prepares for its own IPO, the two companies’ offerings may compete, further dispersing investor funds and enthusiasm. Chanos and others favor Anthropic’s more restrained approach to computing power investments, viewing it as a more cautious and sustainable business model.