Investment Review №332. The Bulls switched to big tech

Wall Street investment banks are celebrating Christmas earlier following Reuters’ report revealing that OpenAI is preparing an IPO targeting a $1 trillion valuation and aiming to raise at least $60 billion, while potentially about $100 billion subject to deal timing. For context, Alibaba’s 2014 IPO remains the largest U.S. listing, raising $21.7 billion with a $169 billion valuation.

Why is this news such a gift for banks? Even at ordinary 3-5% underwriting fees, a $60 billion offering could generate roughly $1.8-3 billion in fees. These are exceptional numbers even by mega-deal standards and will have impact on both quarterly results and full-year figures. Layer in the associated advisory mandates, structuring work, and management option programs, and you’re looking at a compensation bonanza. That’s attractive not only to investment bankers but also to bank shareholders, who — however slim the odds — could even see a special dividend tied to such a windfall. Potential winners include the Big Three — JPMorgan (JPM), Goldman Sachs (GS), and Morgan Stanley (MS) — though it remains unclear which of them will secure the deal.

Although banks are poised to earn record fees, this should not deter prospective participants in the offering. OpenAI would be the so-called pure play, offering net exposure to artificial intelligence with no public‑market alternatives. Unlike Microsoft (MSFT), Amazon (AMZN), or Alphabet (GOOGL), where AI is one segment within diversified business, OpenAI is fully focused on generative AI.

While no financials are publicly available so far, widely cited leaks suggest a striking trajectory: revenue of about $28 million in 2022, and approximately $4.3 billion in the first half of 2025, with 2025 year-end projections in the $15–$20 billion range, implying more than 700x growth over three years. A revenue base this large has never expanded this quickly. Given a current private‑market valuation of roughly $500 billion, an IPO with a $1 trillion value reflects a conventional premium of approximately 40x P/S (enterprise value to revenue, price / sales). Under current projections, this is not the highest valuation this year, not to mention 2027, when the company plans an IPO. The reported $13.5 billion loss in the first half of 2025 is a clear risk. Still OpenAI stands out as an exception to the rule, evident in its valuation and its revenue growth, therefore, investors may tolerate heavy investment in AI infrastructure and full-fledged AI ecosystem build-out in the early public years.

Recent corporate restructuring, efforts to diversify reliance on Microsoft (now holding a 27% stake), and the California Attorney General’s approval of the transition to a for-profit entity create a favorable setup for a listing. OpenAI is positioned not only to fundamentally transform our daily lives, but also to present a compelling investment opportunity that we believe cannot come soon enough.