OpenAI's Trimmed Funding Round Highlights AI Jitters in Private Markets

The trimmed-down fundraising round from OpenAI is a sign that AI concerns are moving from public stocks into the private market. Some participants sized back their allocations in the roughly $20 billion raise, a target cut from $30 billion.

Still, the round lands at a $1.25 trillion valuation for OpenAI, lower than the $1.4 trillion it first aimed for. Crossover funds with holdings in both public and private domains are directly exposed to public market volatility, according to CNBC’s Kate Rooney.

Are OpenAI’s Backers Hesitant to Add to Their Stakes?

Rooney noted that many private investors already have a stake in OpenAI. Adding more exposure becomes harder when public markets are unsettled, she added.

Some investors reduced their planned contributions ahead of the October 30 cutoff. As a result, the first close may total less than $20 billion.

Around October 22, OpenAI first lowered its valuation objective before shrinking the round size.

In March, the company raised $122 billion at an $852 billion valuation, roughly six times the current target.

A consortium from the United Arab Emirates that includes the state-backed technology fund MGX is expected to be the largest participant in the round. Reuters reported that OpenAI would also secure an option to lease computing capacity in the region.

Are Shrinking Private Rounds Driving AI Firms to Public Markets?

Rooney said that weak demand from private investors puts more pressure on AI companies to access public markets. She noted that private and public markets once moved independently.

OpenAI confidentially filed for an IPO in June. Its CFO told employees in August that the company will go public in 2027, CNBC reported.

Anthropic, meanwhile, filed publicly for a Nasdaq listing on October 26. Some investors are reportedly holding off to see Anthropic’s IPO price.

The Nasdaq Composite fell 2.86% on October 30, ending its worst month in over a year, reported CNN. The S&P 500 lost 1.82% that day. Market participants are looking for proof that big spending on data centers by the likes of Alphabet, Microsoft, Meta, and Amazon will turn into profit.

If private fundraising rounds continue to shrink, AI labs could face public market scrutiny sooner. In turn, Anthropic’s IPO price may test whether public investors still support trillion-dollar AI valuations, a target that reports put between $1.5 trillion and $2 trillion.