OpenAI investment 'isn't the game I want to play in,' says Primetime Partners' Alan Patricof

CNBC Television
13 Sept 202404:31

TLDRAlan Patricof, co-founder of Primetime Partners, shares his thoughts on OpenAI's potential $150 billion valuation. He expresses skepticism about investing in such ventures, citing high risks and speculative nature. Patricof believes it's not the type of investment he wants to engage in and notes that while there may be a few winners, many will likely lose. He points out that companies like NVIDIA, which supply essential hardware like chips, are safer bets. Patricof also mentions how many firms are leveraging OpenAI's technology to improve productivity and profitability.

Takeaways

  • 💼 Alan Patricof, co-founder of Primetime Partners, says he is not interested in playing in the high-valuation tech game.
  • 💸 OpenAI's valuation is staggering, with discussions around a $150 billion figure, a major leap from $80 billion just nine months ago.
  • 🚀 The company is burning $7-10 billion a year on computational power, marking it as a high-stakes player in tech.
  • 🏢 OpenAI has a for-profit subsidiary, which complicates its valuation given its non-profit structure.
  • 📊 Patricof mentions the uncertainty of predicting an exit strategy for OpenAI, especially considering an IPO might be the only way to realize such a valuation.
  • 🎥 He likens this situation to past tech bubbles, where only a few companies succeed and many fail.
  • 💡 NVIDIA, a chip supplier, is identified as a clear winner in the AI space, as companies need their hardware to run AI models.
  • 📈 The valuations of big tech companies like Amazon, Microsoft, Google, and Apple have also surged due to the AI boom, but their sustainability remains in question.
  • 🛠️ Patricof compares the AI boom to the gold rush, where 'picks and shovels' (like chipmakers) might be the safer investment.
  • 🤖 Patricof notes that all of his Primetime portfolio companies are using OpenAI technology to enhance productivity, but he remains skeptical of the platform giants.

Q & A

  • What is Alan Patricof's reaction to OpenAI's $150 billion valuation?

    -Alan Patricof finds the $150 billion valuation staggering and difficult to comprehend, especially given the company's rapid rise in value from $80 billion just nine months ago.

  • How does OpenAI's current financial structure influence its valuation?

    -OpenAI is structured as a not-for-profit company with a for-profit subsidiary. This setup, along with its substantial costs for computational power, raises questions about how its valuation is determined and whether restructuring or an IPO would be needed to justify it.

  • Why does Alan Patricof believe investing in OpenAI is not for him?

    -Patricof feels that investing in OpenAI is a speculative game he doesn't want to participate in. He has seen similar scenarios play out before, where there may be a few winners but many losers, and he prefers not to engage in such investments.

  • What are Patricof's thoughts on how investors are approaching OpenAI?

    -Patricof believes that many investors and investment funds are driven by a fear of missing out (FOMO). They want to show their investors that they are part of the action, even if it means buying into OpenAI at uncertain valuations.

  • How does Patricof compare OpenAI's valuation to Nvidia's success?

    -Patricof notes that Nvidia is a more tangible investment because it produces physical chips necessary for AI. In contrast, he finds OpenAI’s valuation harder to assess due to its less visible, software-driven nature.

  • What is Patricof's perspective on the rising valuations of big tech companies like Amazon, Microsoft, and Google?

    -Patricof acknowledges that big tech companies have seen valuation boosts due to AI advancements. However, he questions whether all of these valuations are justified and sustainable in the long term.

  • What is Patricof's investment strategy at Primetime Partners?

    -At Primetime Partners, Patricof focuses on companies that support the 'ageless generation,' using AI technologies to improve productivity and profitability, rather than investing directly in large AI platforms like OpenAI.

  • How does Patricof view the future impact of AI technologies on businesses?

    -Patricof believes that AI technologies like those developed by OpenAI will improve productivity across many industries and help businesses generate profits, even if the platform companies themselves may face uncertain outcomes.

  • Why does Patricof mention a 'picks and shovels' analogy in relation to AI investments?

    -Patricof uses the 'picks and shovels' analogy to suggest that investing in the tools and infrastructure that support AI development, like Nvidia's chips, may be a safer strategy than investing directly in speculative AI companies.

  • What does Patricof imply about the future of companies like OpenAI?

    -Patricof implies that while OpenAI and similar companies are currently at the forefront, it's uncertain which of these platform companies will ultimately prevail. He believes the current hype may not translate into lasting dominance.

Outlines

00:00

🤔 OpenAI's Whopping $150 Billion Valuation

The paragraph introduces the staggering possibility of a $150 billion valuation for OpenAI, which is currently considered a not-for-profit. The speaker questions what needs to happen to justify such a valuation, possibly through restructuring and an IPO. This reflects the broader implications of the tech company's potential growth.

💼 For-Profit Subsidiary with a Non-Profit Structure

The speaker discusses how OpenAI, with a for-profit subsidiary despite its non-profit status, is burning $7-$10 billion a year on computational power. OpenAI is now one of the most valuable entities in the world, second only to ByteDance. Despite skepticism about the valuation, the speaker acknowledges the company's extraordinary revenue of $2 billion.

🧐 Speculative Investments in OpenAI

This section explores whether investors will buy into OpenAI, with large mutual funds potentially interested before the company goes public. The speaker mentions that they personally would not invest, as they believe it's a speculative play with many potential losers, despite some winning big.

📉 Cautionary Tale of Tech Speculation

Reflecting on past experiences, the speaker cautions that many companies may not succeed despite the excitement around OpenAI. They note that some investors are buying into hot names just to avoid missing out, without fully understanding the exit value or long-term potential.

📈 NVIDIA’s Role as a Clear Winner

NVIDIA is highlighted as a clear winner in the AI revolution due to its production of chips that are essential for the technology. The speaker questions whether the inflated valuations of major tech companies like Amazon, Microsoft, and Google, boosted by AI hype, are justified.

⛏️ Picks and Shovels Strategy in AI

The speaker compares investing in AI support industries to the safer 'picks and shovels' strategy during a gold rush. They explain that every company they’re involved with is integrating AI in some way to improve productivity, suggesting that numerous organizations will benefit from AI, though which platforms will dominate remains uncertain.

Mindmap

Keywords

💡OpenAI

OpenAI is a prominent artificial intelligence research organization and company. In the transcript, it is discussed in terms of its massive valuation and its role in the tech industry, specifically how its AI capabilities, such as ChatGPT, have disrupted markets.

💡Valuation

Valuation refers to the monetary worth assigned to a company. In the transcript, OpenAI's valuation of $150 billion is discussed, questioning whether such a high valuation is justified given the company's current state as a not-for-profit with a for-profit subsidiary.

💡Not-for-Profit

A not-for-profit is an organization that does not distribute its profits to owners or shareholders. OpenAI is described as a not-for-profit company with a for-profit subsidiary, which complicates its valuation and potential future exit strategies like an IPO.

💡IPO

An IPO (Initial Public Offering) is when a company first sells its shares to the public. The transcript speculates that OpenAI might restructure and exit through an IPO, given its enormous valuation.

💡Speculators

Speculators are investors who take significant risks with the hope of making large gains. The transcript mentions that the current investment environment around AI, including OpenAI, attracts speculators, who are betting on the technology’s long-term potential without guaranteed outcomes.

💡Picks and Shovels

This term refers to companies that supply essential tools or resources during a technological boom. In the transcript, Nvidia is likened to the 'picks and shovels' of the AI boom because they supply the chips needed for computational power in AI applications.

💡Nvidia

Nvidia is a technology company that designs and manufactures GPUs (graphics processing units). The transcript identifies Nvidia as a major beneficiary of the AI boom because its chips are crucial for AI computations.

💡Revenues

Revenues are the income generated from normal business operations. OpenAI is mentioned as generating $2 billion in revenues, which contributes to its staggering valuation, even though it also incurs high costs.

💡Computational Power

Computational power refers to the capacity of a system to process information. In the transcript, it is discussed that OpenAI spends $7 to $10 billion a year on computational power, highlighting the immense resources required to run AI models like ChatGPT.

💡Exit Strategy

An exit strategy refers to how investors can realize returns from their investments, often through events like IPOs or acquisitions. The transcript discusses how OpenAI, given its structure and valuation, might pursue an exit strategy in the future.

Highlights

The $150 billion valuation for OpenAI seems staggering.

OpenAI is considered the second most valuable company in the world today after ByteDance.

OpenAI is currently a not-for-profit with a for-profit subsidiary.

Speculators may drive investment due to fear of missing out, even without clear valuation analysis.

OpenAI is reportedly burning $7 to $10 billion a year on computational power.

Alan Patricof mentions he's seen similar speculative situations before and is cautious.

NVIDIA is a clear winner in the AI boom, given the high demand for its chips.

Patricof compares the current AI boom to a 'picks and shovels' approach, indicating safer investments are in suppliers.

Mutual funds and organizations may invest in OpenAI to showcase hot names on their portfolios.

Many companies are integrating AI technology to improve productivity.

The ultimate value or exit strategy for OpenAI remains unclear.

Primetime Partners invests in companies supporting the aging generation, all benefiting from AI technology.

There will be a few winners in the AI market, but many losers have already merged or failed.

Some investors may only be interested in the prestige of having OpenAI in their portfolios.

Alan Patricof prefers not to invest in this type of speculative AI market.

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