Microsoft-Backed OpenAI (MSFT) Has Reached $10B in Annual Recurring Revenue
Microsoft-backed AI company OpenAI has reached $10 billion in annual recurring revenue (ARR) less than three years after launching its popular ChatGPT chatbot. This total includes sales from its consumer products, ChatGPT business services, and its API, but does not include licensing revenue from Microsoft (MSFT) or large one-time deals, according to an OpenAI spokesperson. Interestingly, this amount jumped from about $5.5 billion in ARR last year. However, its rapid growth has come at a cost, as OpenAI lost around $5 billion last year to support its expansion.
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Nevertheless, OpenAI is aiming for even bigger targets. Indeed, the company is reportedly looking to reach $125 billion in revenue by 2029, according to a person familiar with the plans, which was first reported by The Information. In addition, earlier this year, OpenAI closed a $40 billion funding round that turned out to be the largest private tech deal on record and valued the company at $300 billion. As a result, based on today's revenue, OpenAI is currently valued at about 30 times sales. This highlights the huge expectations that investors have of the company.
It is worth noting that OpenAI first launched ChatGPT for consumers in late 2022 and added business products the following year, with adoption growing quickly. By late March, the firm said that it had 500 million weekly active users. Moreover, earlier this month, OpenAI reported that it now has 3 million paying business users, which was an increase from 2 million in February. These strong user numbers are helping drive OpenAI's fast revenue growth as it continues to expand its AI products for both consumers and businesses.
Is MSFT Stock a Buy?
Although you cannot directly invest in OpenAI, you can buy shares of Microsoft, which has a 49% stake in OpenAI. And according to analysts, Microsoft stock has a Strong Buy consensus rating among 36 Wall Street analysts. That rating is based on 31 Buys and five Holds assigned in the last three months. Furthermore, the average MSFT price target of $514.93 implies 9% upside potential.
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