This Little Detail Shows What High-Profile Investors Really Think About OpenAI

OpenAI, the name behind ChatGPT, recently closed a $10 billion joint venture (“JV”) with private-equity firms TPG (TPG), Bain Capital, Advent, and Brookfield Asset Management (BAM). These companies are putting up $4 billion, and the JV, called The Deployment Company, is valued at $10 billion before factoring in money raised from the deal.

The deal accelerates the rollout of OpenAI’s chatbots to hundreds of private-equity investments. But what’s been largely overlooked is the financial structure of the deal – and some “not good” things it says about how private-equity firms view OpenAI stock.

The venture is majority-owned and controlled by OpenAI, with the four investors receiving board seats, according to a Reuters report from March. The firms also get some extras as part of the deal, including a senior investment and priority access to OpenAI’s enterprise tools.

Through the partnership, these private equity firms will drive the adoption of OpenAI’s tools across their portfolio companies.

As my colleague David Engle explained:

• Deployment of OpenAI’s technology among the 1,200-plus businesses within the four firms’ portfolios would fast-track AI adoption across a vast corporate economy. This is critical, as the enterprise AI software market was roughly $75.6 billion in 2025.

• For OpenAI, deeper penetration into that enterprise ecosystem should lead to more – and recurring – revenue. After all, the global private-equity sector manages more than $13 trillion in assets.

• This partnership could signal a huge shift in AI strategy… not just for OpenAI, but for all AI tech companies. Yes, deals with consumer and individual clients remain necessary and important. But forming ventures with private-equity firms is basically the equivalent of closing hundreds – if not thousands – of deals at a time.

OpenAI and Anthropic Are Battling for Enterprise Adoption

Of course, it’s not just OpenAI that’s looking to accelerate the deployment of its models. Key rival Anthropic has set up its own JV with Blackstone (BX), Goldman Sachs (GS), Hellman & Friedman, and General Atlantic. The firms are raising about $1.5 billion for the venture.

OpenAI and Anthropic are in a “land grab” for enterprise customers, aiming to deploy their AI models and secure a “first-mover” advantage.

Enterprise customers offer a few advantages over regular customers. First, they’ll pay more for subscriptions. Since their business may rely on AI models for productivity, companies will evaluate the product on profitability. AI can be a win if it drives incremental profits.

Second, AI companies think that once their models are established, they’ll enjoy the benefits of high switching costs (i.e., it will be too costly to move to a different model). This feature is one of the key benefits of traditional enterprise software, and AI firms are looking to replicate it.

Both Anthropic and OpenAI have been considering conducting an initial public offering in 2026. A faster deployment of their tools helps raise revenue and tells a better story to investors.

OpenAI JV Financing Suggests Private Equity May Be Wary

A key part of successful investing is watching what smart investors do. Do they like a stock or an industry? How exactly are they investing their money? Is it a big investment or a small one? By answering questions like these, individuals can get a sense of what savvy investors really think.

While the OpenAI tie-up seems to make strategic sense, investors should pay close attention to how the various partners financed this deal. It paints a less-than-rosy picture of how these private-equity firms view a more traditional investment in a fast-growing company.

According to Reuters, the JV involved private equity putting up $4 billion. But this wasn’t a normal investment, where OpenAI offered its partners a slug of common stock for their cash.

Instead, OpenAI offered preferred stock in the venture. This stock provides a guaranteed minimum return of 17.5% and sits senior to common stock, limiting the shares’ downside. For context, riskier publicly traded preferred stocks might earn in the 9% range or so, suggesting that investors are demanding a high return for OpenAI’s risk.

It’s an unusual setup, especially when OpenAI has been aggressively selling its common stock to anyone who wants it. Why weren’t these firms interested in one of the hottest potential IPOs?

It’s a telling move. Their unwillingness to take a deal for OpenAI’s common stock suggests that they see significant risk, particularly in the stock’s valuation and massive capital burn.

So, with preferred stock, the private-equity firms can lock in a guaranteed return and receive higher priority over common stockholders in a liquidation. Those are significant advantages that ensure a good return, even if regular investors in the common stock suffer significant losses.

Why would smart investors opt for this structure if they saw unlimited upside for OpenAI’s common stock?

On OpenAI’s side, this deal locks them into high-cost financing for years. Still, it may have been the only way to entice investors, given the high risks in its business.

Other finer details of the deal’s structure might shed further light on the investors’ motivations, but the contract is privately negotiated.

But for investors trying to read the tea leaves, it’s a worrisome sign that some of the world’s most knowledgeable investors feel the need to lock in their returns and limit their downside. It’s not the kind of move you’d expect to see for a company with a “blue sky” opportunity.

If you’re listening to the hype – such as OpenAI’s soaring valuation – you might come to believe that everyone wants its common stock. Yet, some sophisticated investors seemingly do not.

OpenAI’s Valuation and Losses Soar, Creating Risk for Investors

OpenAI’s valuation has soared in the past year to almost unimaginable heights, particularly for a company that continues to lose billions of dollars and has a dubious prospect of turning a profit soon. This combination has made its stock less attractive to private investors in a deal such as this JV.

Here’s OpenAI’s soaring valuation over the past 18 months or so:

This last round brought in the largest capital raise ever: $122 billion. That amount was divided mostly among Amazon (AMZN), Nvidia (NVDA), and SoftBank (SFTBY), which added $50 billion, $30 billion, and $30 billion, respectively.

All that money will go straight into OpenAI’s operations, with much of it likely to be burned.

Here were OpenAI’s loss expectations as of late 2025:

• 2026: $14 billion loss

• 2028: $74 billion cumulative loss

• Through 2029: $115 billion cumulative loss

• 2030s: Profit

But expecting to turn a profit several years from now is anything but certain. OpenAI will need to spend hundreds of billions of dollars, and its economics are dubious. It may never happen.

OpenAI is already walking back big projects that have been incinerating cash at a furious pace:

• It walked back plans for Instant Checkout, which allows consumers to buy goods in ChatGPT.

• It closed Sora, its video generation platform, despite a $1 billion deal with Disney (DIS).

• It also shuttered its “adult mode” ChatGPT service.

So, what differentiates the investments of players such as Amazon, Microsoft, and Nvidia from savvy private-equity shops? In other words, if private equity is skeptical of OpenAI, why isn’t Big Tech?

The answer is about motivation. Investments from Big Tech players are effectively plowed right back into AI companies. These funds buy AI data-center capacity from Microsoft and Amazon, and they help purchase more Nvidia chips.

The tech companies’ investments keep their own businesses flowing today, in a process some have derided as “circular financing.” In contrast, private-equity firms – which lack this incentive – have opted to be more cautious about their AI investments.

The key point for investors is that the rapid run-up in AI stocks has made a few private investors much more cautious about the returns they’re demanding. Savvy investors are watching not only what stocks are doing but also what the other people around the poker table are doing. If you’re not watching the other players, you’re more likely to wind up a bagholder.

Regards,

James Royal, Ph.D.

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