OpenAI is reportedly in talks with Saudi Arabia’s Public Investment Fund (PIF) and India’s Reliance Industries for potential investments in its US$40 billion fundraising effort.

These investors could each contribute hundreds of millions of dollars.

The funds would support model development and the Stargate infrastructure initiative.

Fundraising efforts are reportedly led by SoftBank.

OpenAI has also approached Coatue and Founders Fund for investments of at least US$100 million each.

The company aims to raise an additional US$17 billion by 2027.

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🔗 Source: Reuters

🧠 Food for thought

1️⃣ OpenAI’s extraordinary capital needs reflect the escalating AI arms race

OpenAI’s quest for $40 billion in funding highlights the massive capital requirements now standard in frontier AI development, far exceeding traditional software startups.

This represents a dramatic evolution from the company’s origins, founded in 2015 with $1 billion in initial funding from tech luminaries including Elon Musk, to its 2024 valuation of $157 billion after completing a $6.6 billion funding round 1.

The scale of investment matches OpenAI’s ambitions for “Stargate,” its new infrastructure project that will likely require building specialized data centers with custom AI chips and cooling systems.

This funding pattern reflects the broader AI sector, where total investment reached $252.3 billion in 2024, a 25.5% increase from the previous year 2.

Such capital-intensive development creates significant barriers to entry, with only a handful of companies able to compete at the frontier of AI capabilities. Generative AI startups received 48% of all AI funding despite representing a smaller portion of companies 3.

2️⃣ Global investors diversify OpenAI’s funding base beyond US tech

OpenAI’s discussions with Saudi Arabia’s PIF, India’s Reliance Industries, and UAE’s MGX represent a significant shift in AI financing toward sovereign wealth funds and international corporations.

This internationalization of funding sources comes as North America continues to dominate AI investment with 60% of total value, creating incentives for companies to diversify their capital base 1.

The interest from Middle Eastern and Indian investors reflects these regions’ strategic priorities to participate in advanced technology development despite having smaller domestic AI sectors. For example, China accounts for only $9.3 billion in private AI investment compared to the US’s $109.1 billion 2.

For countries like Saudi Arabia and the UAE, whose sovereign wealth funds manage hundreds of billions in assets, these investments align with their economic diversification strategies beyond traditional energy sectors.

This pattern extends beyond OpenAI, as international investors increasingly seek stakes in leading AI companies to secure both financial returns and technological transfer opportunities.

3️⃣ AI valuations reaching unprecedented heights amid profitability questions

The reported $40 billion financing would value OpenAI at approximately $150-200 billion despite limited revenue and profitability, highlighting the extraordinary premium investors place on AI leadership positions.

This valuation trend is industry-wide, with median revenue multiples for AI companies reaching 29.7x in 2024—significantly higher than traditional software companies—reflecting investor belief in the future dominance of AI 4.

The concentration of mega-deals exceeding $1 billion (13 such deals in 2024) points to investor conviction that leading AI companies will capture disproportionate market share and economic value 4.

However, these valuations come amid modest enterprise adoption metrics. A McKinsey survey found only 4% of occupations using AI for 75% or more of their tasks, and 49% of businesses reporting cost savings of just 10% or less from AI implementation 2.

This disconnect between current impact and market valuations suggests investors are making decade-long bets on AI transformation rather than near-term financial performance, creating potential vulnerability if progress or adoption rates slow.

Recent OpenAI developments

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