00:00Today on Forbes, why Sam Altman won't be on the hook for OpenAI's massive spending spree.
00:08Over the last few months, OpenAI CEO Sam Altman has been on a tear of deal-making,
00:14announcing multi-billion dollar agreements with the biggest tech companies in the world.
00:19There's Oracle, NVIDIA, Microsoft, AMD, Broadcom, and most recently, Amazon.
00:26He's committed to spending a grand sum total of $1.4 trillion on data centers in the coming years.
00:34An eyebrow-raising figure for a company which claims its annual revenue is projected to reach $20 billion this year.
00:41This begs an all-important question for the entire tech industry, whose fate is now tied to OpenAI.
00:47What happens if he can't pay?
00:49At an event this past week, OpenAI CFO Sarah Fryer seemed to suggest that the government could act as a
00:57quote, backstop for the company's commitments, comments she later walked back.
01:03And in a long-winded post on X, Altman addressed the question of what happens to OpenAI if its web of deals falls apart.
01:10He said, quote,
01:12If we screw up and can't fix it, we should fail, and other companies will continue on doing good work and servicing customers.
01:20He added, quote,
01:21We of course could be wrong, and the market, not the government, will deal with it if we are.
01:28The odds don't look great right now.
01:30In a recent blog post, Tomas Tungus, a general partner at Theory Ventures, wrote that in order to come through on its compute commitments,
01:39OpenAI's revenue would have to grow to an estimated $577 billion by 2029, roughly the size of Google's revenue that same year.
01:48That's a roughly 2,900% jump from its current projections for 2025.
01:54But OpenAI has options.
01:56D.A. Davidson analyst Gil Luria said that one likely scenario is that the AI company pays for and utilizes only a portion of the compute it has booked.
02:07In that case, companies like Oracle, Amazon, Microsoft, CoreWeave, and others will most likely renegotiate the contracts
02:14and ensure they get at least some amount of business from OpenAI, especially if the alternative is getting none at all.
02:22Luria told Forbes, quote,
02:24They don't want OpenAI to go bankrupt, so their incentive is to renegotiate.
02:30Renegotiating contracts isn't uncommon in the data center world.
02:34These contracts are extremely complex and often spread out over a span of years.
02:39Some parties can even further extend timelines in case companies aren't able to meet commitments.
02:44Clients like OpenAI are typically billed on the basis of usage.
02:48Data center expert Daniel Golding said that the, quote,
02:52Big numbers being announced are often larger than what's actually committed under contract,
02:57largely due to variables like share price, data center construction cost, and GPU price.
03:02For instance, OpenAI has committed to buy up to 6 gigawatts of AMD's chips,
03:08estimated to be worth around $90 billion,
03:11in exchange for about 10% of AMD shares, no cash on either side.
03:15But that hinges on performance milestones for OpenAI's technology and commercial business,
03:21as well as AMD's share price.
03:24The contracts often have some capital-I ifs.
03:28Thanks to constraints on power supply and chip availability,
03:31there's a possibility that some of these infrastructure providers
03:34aren't able to deliver in time,
03:36another opportunity for OpenAI to weasel out of paying some of the top-line number.
03:41OpenAI's $22.4 billion in total contracts with CoreWeave, for instance,
03:47can be terminated by either party at any time, quote,
03:50for cause, legal speak for things like delays.
03:55Experts note Chief Dealmaker Altman doesn't have anything to lose.
03:59He has repeatedly claimed he does not have a stake in the company
04:02and won't have a stake even after OpenAI has restructured
04:05to become a public benefit corporation.
04:07Ophir Eldar, a corporate governance professor at the UC Berkeley School of Law,
04:12said, quote,
04:13He has the upside, in a sense, in terms of influence, if it all succeeds.
04:18He's taking all this commitment,
04:20knowing that he's not going to actually face any consequences
04:22because he doesn't have a financial stake.
04:26That's not good corporate governance,
04:28according to Joellen Posner,
04:29a professor of management and entrepreneurship
04:32at Santa Clara University's Levy School of Business.
04:35She said, quote,
04:37We allow leaders that we see as being super pioneering
04:39to behave idiosyncratically,
04:41and when things move in the opposite direction
04:43and somebody has to pay,
04:45it's unclear that they're the ones that are going to have to pay.
04:50For full coverage, check out Rashi Srivastava,
04:52Phoebe Liu, and Richard Nieva's piece
04:54on Forbes.com.
04:57This is Kieran Meadows from Forbes.
04:59Thanks for tuning in.
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