OpenAI Financials and Future Outlook

Day on the AI daily brief Some big shifts in the AI race before that in the headlines The latest on Anthropics fight with Washington. AI Daily Brief is a daily podcast and video about the most important news and discussions in AI All right, friends, Quick announcements before we dive in First of all, thank you to today's sponsors, KPMG, Robots and Pencils, Mission Cloud, and Out Systems To get an ad free version of the show, go to patreon. com slash Ai Daily brief or you can subscribe on Apple podcasts If you want to learn more about sponsoring the show, send us a note at sponsors at Aiailybrief. ai We are back with a normal episode today. Appreciate your forbearance yesterday as we got to go make some core memories at the World Cup. And of course, the big story happening behind the scenes in AI continues to be the fallout of the Fable five shhutdown and the negotiations to try to bring it back It has at this point been five days since the US government shut down mytho slash Fabel, or rather imposed the conditions upon anthropic where they were forced to shut down mythos slash fel, and it doesn't particularly appear like we're any closer to a resolution On Monday, anthropic leaders touched down in Washington to explain the situation and to try to come to some new type of understanding Interestingly, and I think giving some insight into how Anthropic is viewing this situation rightly or wrongly, is that the talks appear to have been largely technical Anthropicent Chief Compute Oicer Tom Brown, Head of external Affairs, Sarah Heck, Head of Red Taming Loganraam and senior security researcher Nicholas Carlini. The Wall Street Journal actually ran quite a long piece about Carlini entitled The Hacker Sent by Anthropic to calm the government's nerves about AI safety The journal describes him as a well respected hacker who is considered something of a professional skeptic of AI cybersecurity claims, who has, quote lately changed his mind Putting some fuel on the fire of no this time was actually different, they write Just weeks after getting his hands on Mythos, Carlini offered a stark warning to a standing room only crowd of cybersecurity experts. First he showed them how he had used Anthropics AI to find and exploit a critical bug in a piece of web publishing software called Ghost, Th then he demonstrated another in the Linux operating system, onene of the most battle tested pieces of software, which powers billions of devices. Carlini had never before found a bug in Linux or in Ghost now he had discovered many. What he was seeing represented a new world order for cybersecurity. The balance that existed between attackers and defenders over the past few decades, quote, seems like it's probably coming to an end. He continued, It's pretty clear to me that these current models are better vulnerability researchers than I am Now that was back in March, and it sounds like Carlini was one of the folks inside of Anthropic, pushing the company not to release Mythos at that time Fast forward to the situation we have today, former DOD official and council on foreign relelations senior feellllow Michael Horowitz said The government anthropic clearly have an inability to communicate effectively with each other. More technical exchanges should be helpful in socializing these issues in a way that should lead to better decisions. Coming back to the negotiations, on the government side, staff from the Center for AI Stards and Innovation in the Office of the National Cyber Director also attended the meetings Commerce Secretary Howard Lutnik phoned in from the G seven summit in France. However, it appears that none of the key architects of the decision, including National Cyber Director, Sean Karncross, Treasury Secretary Scott Besscenton or White House Chief of Staff Suzy Wes were in attendance. Given the prior reporting, then, it's questionable whether anyone in the room on Monday had authority to actually call off this mythos fable ban. And one thing that is worth underscoring at this point, obviously since so much of the coverage mine included has focused on Fable, because gosh, darnt you took our new toy away, this is absolutely not just a Fable five ban. It is very much a mythos ban as well. In fact, it seems like the rerelease of Fable to consumers is fairly low on the list of the government's concerns. Sources said the Commerce Department expressed a willingness to allow Fable to come back online as long as anthropic fixed to the jailbreak that was at the heart of the matter in the first place Mythos, it seems, is another question Over the weekend, we had some very thin reporting from Sh four that the administration feared the Chinese government had gained access to mythos. n Tuesday, the Washington Post reported that a big part of the schism with anthropic had come about from the expanded access to mythos a few weeks earlier The WP wrote that Anthropic added around fifty firms to Project Glasswing at that time, and it was then that, quote, senior officials began to consider using export controls to claw back the technology after Anthropic did not identify the new recipients for days. Once the government had the list, they discovered that one recipient was a South Korean telecom company that the administration suspects of having ties to the Chinese government Now the nature of the jailbreak is also getting increased attention in the press. On Tuesday, the Atlantic elevated the analysis of La security CEO Katie Musuris, which I discussed in earlier coverage. They rehashed the point that Fable will refuse to review insecure code for security issues, but when asked to fix the bugs, it will generate patches. Musuris's point has been that this was just the model working as intended for cyber defense arguing that GPT five five and Opus four eight work in the same way. And yet, of course, as we've seen over and over, part of the metaory is about personal interactions between the major players rather than technical specifics In Monday reporting, an administration official told Axios that Anthropic knew the model was susceptible to a jailbreak and decided to distribute it anyway. They came to every fork in the road, the source said, and took the wrong fork. A source familiar with the administration's thinking commented, Anthropic has not done a great job at trying to speak to the administration and appreciate the ideological differences. It's like they just speak in different languages Another quote attributed to an administration official put it more bluntly Everybody said Anthropic was a bad actor. Some of us said it was time to give them a chance. Now those people are questioning that. They screwed us As the week has gone on, we've gotten more and more details. On Tuesday, Bloomberg published the full text of the letter from the Commerce department that shut down Mythos and Fable on Friday night It's written largely in legalese, but the thrust of it was that Anthropic risked criminal and civil penalties for nonc compompliance. The order required them to remove access to all foreign nationals, wherever located. And when during his Friday night phone call with Commerce Secreary Howard Lutnk, Dario Ameday reportedly said, This means we can't have the model out Lutnik responded That's the point Charlie Bullook of the Institute for Law AI commented The legal theory strikes me as strange, very aggressive, and probably vulnerable to legal and constitutional challenge. That said, I don't think that Anthropic will actually sue to challenge anything. Instead, I think they'll work to resolve their differences with the government without resorting to litigation, and that the government will eventually allow them to publish a version of Fable again. Now Charlie also got into one of the bigger issues here, which is the terrible implications of having a regulatory regime that's not really a regulatory regime B of rights The takeaway here, as I've said before and will say again, is that this ad hoc last minute licensing regime is bad for companies and for the Trump administration and for the public, and that we desperately need to replace it with legislation. It's no good for the administration's stated goals that their actions are vulnerable to legal challenge. They should want to fix that problem as much as Anthropic does I actually think that Ashley on X at Palaua gets it directionally correct when she writes. I think I see what's going on here. The topic is negotiating with a regulator without realizing it. When you submit something risky to a regulator, you have to one, describe what the risk is, and two show how you're going to mitigate that risk. Importantly, you have to properly estimate the scope of the risk. If you scope the risk too broadly, then you place extra burden on your mitigation. If you scope too narrowly, then you run the risk directly but you must commit to an estimation to the regulator. What happened here is that anthropic scoped too broadly, and when it was shown that their mitigation was insufficient for the stated risk scope, they responded by trying to narrow it. This is a huge red flag to any regulator for good reasons, so regulatory action followed. And here's what this kind of comes down to for me I think it's pretty undeniable that the government is telling on itself left and right that it doesn't really have the technical capacity, at least with who's in these rooms right now, to understand anything that's happening. We can be mad at that all that we want. You could also be mad about who's in power In fact, being mad at that is one of the privileges of democracy What you don't get to do as a company that is now seen as integral to the economy and national security, and thus a major political consideration is fail to recognize that a big part of your job A significant part in other words of what it means to run the company, is to deal with the government in power I think the most charitable interpretations of Anthropics's actions is that they just haven't realized the extent to which this was now their job There are lots of little details that seem at least a little bit like political gamesmanship, such as the planted detail about Dario being at a wellness retreat when they were trying to get in touch with him But there is also a pattern of anthropic not responding particularly quickly to various concerns and contacts. There are reports that Amazons Andy Jassie reached out to him before he reached out to the US government. We've heard that when they expanded Project Glasswing a few weeks ago, it took them days to get the list of the new actors to the US government. And when even the counter to the wellness retreat narrative was that it took Dario an hour and fifteen minutes to get back to the US government on Friday as this was all going down If that's true, what the hell were you doing for the other hour and fifteen minutes? If the government calls with something that's clearly this mission critical, that's not finish the meeting that you're having. that's pause whatever you're doing and get on the phone So again, I think the charitable interpretation is that Anthropic just hasn't realized upntil now that managing their relationship with the US government is now as important a job as anything that they build in the lab Where does this leave us Cybersecurity experts continue to believe that this is a dangerous misstep from the administration and have said in an open letter with more than a one hundred signatures now that removing mythos from the cyber defense toolkit makes everyone more vulnerable. Some notable geopolitical analysts believe this is a gift to China Aaggatha Demay of the Council on Foreign Relations wrote in the Financial Times that quote, Washington has just done more to boost the appeal of Chinese AI models than Beijing ever could have hoped The business world is concerned about the precedent. Jim Reedid, the global head of macro at Deutsche Bank wrote in a Monday note that if the ban continues, quote, it's not great news for US tech firms or for those assuming breakneck speeds of AI adoption. You can't rely on something that could be switched off And finally, the ban has sent the U.S. based AI research community into a tailspin. Citing a source close to open AI, The Financial Times writes that in recent days, the industry has been working on ensuring foreign national researchers could continue to work on developing the most advanced models. A practice, as they put it, that the anthropic directive has now banned Now, despite the multidisciplinary outcry at this stage, it seems the administration is sticking to their guns and demanding a patch for the jailbreak For those familiar with the technology, it's not even clear that that's possible. Helen Toner, a former member of the openpen AI board, said It's pretty widely agreed upon fact that you cannot fully fix jailbreaks in these models. It's a very inexact science Now, while at this stage, it seems like negotiations in Washington have kind of stalled out, this morning, CNBC reported that AI leaders, including Dario Amadee had traveled to France to take part in the international G seven summit this week And Politico even reports that according to the official agenda, there will be a two and a half hour lunch with CEOs including Dario Amadee, Sam Altman, Debis Sasabz and Mistres Arthur Mench And while the official agenda is all about economic growth and resilient societies, it's hard to believe that the most important discussion won't be what's happening in Washington right now We'll see if anything interesting comes from that, but for now that will close our anthropic headline report today. And next in the main, we'll talk about how Elon Musk is taking advantage of the moment to make some serious moves. 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Teams of any size and technical depth can use O systemystems to build, deploy, and manage AI apps and agents quickly and cost effectively without compromising reliability and security Without systemystems, you can rapidly launch ideas from concept to completion. It's the leading agendic Systems platform that is unified, agile, and enterprise proven, allowing you to accelerate growth, reduce operational friction, and deliver real enterprise impact with AI. Out Systems, Build your agentic future Welcome back to the AI Daily brief Today we're talking about something of a shift in the AI race. And while this isn't directly related to the Fable five controversy and Anthropics dealings with Washington, it certainly does feel like we are in a moment of realignment Yes, there is, of course a political dimension of that as we are all realizing, But the realignment is also happening as the economics of mature agentic AI start to become clear. As I continue to discuss, companies are starting to grapple with the reality of what full agentic workloads are going to cost, and they're quickly working to figure out how to become more efficient with their token consumption, whether it's through lower cost models, better routing, or in the case of more poorly considered strategies, limiting who has access to certain types of advanced AI. Meanwhile, one of the downstream implications of the economics of AI labs is the broader state of the US economy. A huge part of GDP growth is related to the AI infrastructure buildout, which is of course justified by increases in lab revenue. And TLDR, all of these things are happening at the same time. We are in a very liminal moment SpaceX specifically and Elon Musk more generally, have had an interesting place in all of this On the political side, he was cozy with this administration to start, although that inevitably ran into conflicts fairly quickly. And when it comes to AI, his strategy for a time didn't particularly look like it was working While Grock has been beloved by some, it is generally not considered competitive with the top models from a Ben and anthropic The folding of XAI into SpaceX at first seemed to at least a fair number of market commentators as something of an XAI bailout Then everything shifted It turnurns out But when you build two huge supercomputer data centers like Colossus one and Colossus I, that's an asset that you can monetize fairly easily in this environment Over the last couple of months, Elon and SpaceX signed deals to give anthropic and then Google access to that compute and all of a sudden, the economics of SpaceX started to look very different Basically, overnight, neeo Cloud revenue became their number one source of revenue And as they looked to space for the next generation of orbital data centers The narrative heading into their IPO kind of made a lot more sense Now whether you think it was that sort of considered analysis or just SpaceX being the biggest meme stock of all time One thing that is undeniable is its performance post IPO On Tuesday, the stock closed at two hundred and one dollars eighty cents, up forty nine percent from the IPO price. The company is now valued at two point six trillion dollars, making it the fifth largest company in the world by market cap, slightly ahead of Amazon Now for many observers, they just can't get over Elon Musk's personal wealth On the back of the IPO, he became the world's first trillionaire, and he's now on the order of three times ahead of the next closest of the world's richest people Of course, most of his wealth is tied up in his forty six percent stake in SpaceX. And even without those lockups, he couldn't really liquidate any sizable part of that stake without absolutely tanking the market price. But still the sheer numbers here are so gigantic that a lot of people just can't think about anything else Flexport CEO Ryan Peterson pointed out on Monday With today's twenty percent SpaceX pop, Elon made more money today than Warren Buffett made in his entire career Ryan then came back to clarify, I posted this before realizing it was up another fourteen percent after hours Now the SpaceX IPO is going so well that some are suggesting that they might have even left money on the table and could have raised even more For others, the whole thing is a farce. Twitter is absolutely awash with big short video clips that having SpaceX's valuation ahead of Amazon, when Amazon has about forty times the revenue of SpaceX just seems nuts Others point out that the vast majority of SpaceX stock is currently locked and that as it becomes unlocked over the course of the rest of the year, that could create its own sort of bearish pressure But for now, none of that matters, and it's clear that when it comes to the AI race, Elon is going to take advantage of SpaceX's new fortunes and the opportunities it affords him. Investor Bill Ackman wrot One of the things that makes SpaceX so valuable is how valuable it is. The Cursor acquisition, which of course, we're about to talk about, costs materially less and dilution because of SpaceX's high valuation. SpaceX's ability to do economically, strategically, and technologically accretive acquisitions, is an important component of its value. There is enormous value inherent to a company with a high value Particularly when it is controlled by an entrepreneur that the most talented people want to work for and partner with. Value begets value, talent begets talent Now this discussion was around the culmination of the Cursor acquisition, which SpaceX had announced the right to engage in earlier in the year. The deal did come in at sixty billion dollars, and Kursor will become a wholly owned subsidiary of SpaceX As part of the announcement, we found out that Cursor had hit a four billion dollars run rate and was growing seven X year over year But what's much more interesting is what Csors' going to mean for SpaceX's AI strategy going forward. As I mentioned at the beginning, the shift to focus on their neeo clloud strategy has clearly become a more important strategic priority for SpaceX over the past few months. But the cursor acquisition potentially changes a bit about where SpaceX or rather XAI might fit in the model and entnerprise AI battle Going back to this transitional moment between token subsity and token scarcity, Cursor identified at the end of last year that they could not just play the harness game they needed to play the model game as well Since then they've released a series of models under their composer brand their most recent composer two point five, performing in the same range as Opus fourty seven and GPT five five at about a tenth of the cost. Now that model was largely about post training, using a Kimi K model base, but now Cursor is teasing a new trained from scratch model. At the compile event Egineer Nick Dobos wrote new cursor model being teased at compile. sameame size as Clauded Ous and GPD five five, train from scratch, no more Kimy base, ten to twenty X more compute us composer, generally intelligent, not just coding. releases in the next couple of weeks Some people are extremely bullish about the possibilities Lasan on rightits I expect SpaceX AI to be between Google and O openp AI by the end of the year. Composer two point zero was a very strong model, but Elon isn't stopping at one trillion parameter models The financial Times suggested that buuying Cursor could be SpaceX's Instagram moment, referring to the idea that one of the smartest things that Mark Zuckerberg ever did was instead of trying to compete with the hot new thing, just took it off the market very early before it could become a competitive juggernaut Now in my mind, what it'll be interesting to see is whether this new model continues to try to prioritize efficiency in the way that the previous composer models have, or whether this is just XAI and SpaceX getting back into the game, trying to come back out on top and compete at the state of the art, whatever the cost Investor Chhamath Palahapata thinks that despite Cursors's recent focus on models, it is in fact their harness and their relationship with customers that matters. He tweeted This is the first but not the last big exit at the application layer of AI. As product value accrues and accelerates upwards, the focus over the next few years will be firmly on the control plane. What gives organizations who want to go all in on AI the governance, control, auditability, and business continuity across models and across time that they will need to firmly make the leap This is the next big phase of AI value creation that the SpaceX cursor merger is highlighting Now, one more small note on XAI, especially given that the lingering background of all of our discussions right now are the goings on in Washington, The US. government actually recently intervened in a lawsuit against XAI, claiming that GroC is vital to national security. The lawsuit was filed by the NAACP in April. It argues that XAI is in breach of the Clean Air Act by operating unperermitted gas turbines at their Colossus II data center On Wednesday, the DOJ joined XAI's motion to dismiss the case. Their filings stated that the lawsuit quote, threatens American national economic and energy security by seeking to shut off the power supply for artificial intelligence innovation that supports the Department of War's military operations A supporting filing from a Pentagon official explains that Groq was used to quote, support vital national security missions. This includes apparently targeted decisions for recent strikes on Iran Now, of course Groq isn't only model being used to support warfighting. We know that anthropic, Google, and open AI models are also cleared for classified use. Even Dario Amed recently confirmed that Claude was being used for missile targeting, but said that he didn't know the specifics Cheubby on X roade In one June week, two things happen that look unrelated but are actually the same story The Commerce Department forced Anthropic to disable Fable five and Mythos five for every foreign national, while the DOJ went to court in Mississippi to defend XAI's unpermitted gas turbines as too vital to national security to shut off. Why is this interesting It clearly demonstrates one thing, AI and everything that goes with it, data center expansion, frontier models, access, etcera, is increasingly being placed under national security and control Bringing it back to the model lab competition itself and potential changes therein. Anthropic is of course, not the only company with big financial plans this year. Both Anthropic and OpenAI have filed confidentially for an IPO later this year. And of course, in anticipation of that, we expect it to start to get a lot more insight into the company's financials. Well, it happened a little bit before OpenAI would have wanted Withinveterate AI skeptic EdZitron, publishing openenAI's fully audited numbers for the past two years. For two thousand four, the financials stated that openpen AI had three point seven billionars in revenue, twelve point four billionars in costs, and a net loss of a little more than five billion do. In twenty twenty five, openpen AI had around thirteen billion in revenue, just shy of twenty one billionars in operational losses, and a net loss of thirty eight point five billionars Now to the skeptics' view, those thirty eight point five billion in losses were, quote, astronomical and far higher than most believed it would be. And yet when the numbers were shared with the Financial Times, they came to a very different conclusion. Wh, yes, acknowledging the view that costs were outpacing revenues, they highlighted comments from openpAI that the majority of the twenty twenty five costs came from a thirty billion dollars quote noncash accounting change linked to the company's previous structure In other words, the losses were an accounting entry to reflect the conversion to a public benefit company. Under US accounting rules, revenue sharing rights under the old structure are treated as a liability and are not expected to continue moving forward. According to OpenAI, when you strip away this one timee accounting charge in stock compom, OpenAI lost eight billion in twenty twenty five, which is nothing, but certainly a very different story And frankly, when people dug in, the number that seemed to be most overlooked by both of these reports was that openp AI is apparently turning a tidy profit on inference. In twenty twenty four, they generated three point seven billion doars in revenue on two point seven billion in cost of revenue. In twenty twenty five, they generated thirteen billion in revenue on seven point five billion in direct costs. Now, obviously it is too simplistic to strip away training, marketing, and staffing But for those who aren't just trying to find reasons to be skeptical, that's a pretty promising sign that there' solid profit margins in the core business of selling tokens It also looks like OpenAI is holding their burn rates steady as the business expands. The information reports that OpenAI spent three point seven billion dollars in the first quarter of this year, which is a slightly faster annualized rate than twenty twenty five, but not by much. Now that burn rate does not include trading costs, which amounted to eight point six billion in Q one, but the company currently has seventy three billion doars in cash in marketable securities on their balance sheet, which is up from forty billion do in December As we try to figure out what happens next, this could change some amount of the calculus around IPO And Sam Altman has gone out of his way to say that they have not committed to a timeline for going public yet, and it's not hard to concoct a scenario where between SpaceX unlocks and a dip in the narrative that comes with a dip in the SpaceX price, plus continue weird alignment issues with the US government, that OpenAI continues to take advantage of its cash position and stay private a bit longer. So the point of all of this is that just as it seemed like we were settling into this new aentic phase It's actually quite clear that the AI race, such as it is, is an incredibly dynamic and fast moving environment. The big obvious things to watch for next are one, the resolution of Anthropics' Fable five issue, two, whether openen AI can avoid its own issue like that and actually get out a more advanced model. Three, what SpaceX's public price does in the next few months, and four, what the next model to come out of Cursor says about what SpaceX's strategy might be going forward Then of course, there's always Google who has been fairly conspicuously quiet this year, and you can't imagine that that's going to stay the case for long For now that is gonna to do it for today's AI Daily brief, appreciate you listening or watching, as always, until next time. Pace.