Can OpenAI Keep Spending as Growth Slows?

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Luke Vargas (0:33)

OpenAI fails to hit revenue and user targets as it sprints toward an IPO.

Plus, the Trump administration pays two more companies not to develop offshore wind projects. And ahead of the Fed's rate decision tomorrow, we'll look at the pressure facing central bankers around the world.

Jason Douglas (0:50)

The Bank of Japan is confronting the same problem that is bedevilling every central bank now, which is that war in Iran has made a mess of their inflation forecast, it has made a mess of their growth forecast, and they left with very few good options on how to respond.

Luke Vargas (1:04)

It's Tuesday, April 28th. I'm Luke Vargas for the Wall Street Journal, and here is the AM Edition of What's News, the top headlines and business stories moving your world today.

With just months to go before a planned IPO and its business in a slowdown, OpenAI's board is probing plans to spend $600 billion on data centers and questioning CEO Sam Altman's efforts to secure even more computing power. We're exclusively reporting that OpenAI CFO Sarah Fryer is worried that future revenues won't be able to make up for the massive outlays. And here with more is journal finance editor Alex Frangos. Alex, the strategy at OpenAI has for a long time been that massive spending would yield massive growth. It seems like that math though now might be facing a bit of a stress test.

Alex Frangos (1:52)

Well, there seems to be a discussion going on within OpenAI as to how much money it should be spending. Its business has hit a few bumps in the road. It's losing ground and buzzed to its chief rival Anthropic. They're both racing towards doing initial public offerings as soon as later this year. And when you're going to do an IPO, you want your finances in order. You want everything to look, you know, as strong as possible.

And there's this debate, they need to spend a lot of money to invest in data centers, but they want the business, the end users, people using ChatGPT and other tools to be actually growing and using it. And it seems to be that they missed their own targets for how fast they want to grow their new users, how fast they want to grow their revenue. So the question is, what do you do? Do you kind of pull back on some of that spending until things pick up or do you keep spending because you think you need to in order to hit those targets?

Luke Vargas (2:45)

Alex, could those concerns raise questions about the success of this upcoming IPO?

Alex Frangos (2:50)

That's the trillion-dollar question here. And we've seen this before with these big, big tech companies. They have a certain kind of startup culture, break things, ask questions later. And an IPO is invariably a process where you're getting mainstream investors, people on Wall Street, on the other side of the country, who are much more buttoned up to buy into your story and your investment thesis.

So, it has a lot of echoes of when Facebook went public or when Uber went public. These kind of culture clashes, but also business clashes. Investors generally want a growth story, but they want solid revenue. They want to see maybe even some profit. And that tension there with OpenAI is like how much revenue are they going to have? Will they be ready to have their debut on public markets? And I think that debate is going on inside the company as to when that should happen and how quickly.

Luke Vargas (3:42)

Though as Finance Editor Alex Frangos, OpenAI's CEO and CFO, said in a statement, they are totally aligned on securing new computing resources.

The Trump administration has announced payouts totaling nearly $900 million to a pair of energy companies to walk away from their offshore wind projects under development. Arguing that the projects are untenable without taxpayer subsidies, the Interior Department said that Blue Point Wind and Golden State Wind would end their offshore leases for projects in New York, New Jersey and California. That comes after a recent deal with French company Total Energies, which is getting a $1 billion payout to walk away from projects off the coasts of North Carolina and New York. But as energy and climate reporter Ed Ballard explains, whether those deals are good for US taxpayers is up for debate.