OpenAI’s conversion to a for-profit entity has become one of Wall Street’s most coveted projects, with Goldman Sachs and Morgan Stanley leading the charge in what could be a six-month valuation process. According to the Wall Street Journal, OpenAI and its primary backer Microsoft have initiated talks to determine Microsoft’s equity stake if the AI startup transitions from its nonprofit structure. Microsoft has invested approximately $14 billion into OpenAI and has enlisted Morgan Stanley to represent its interests, while OpenAI has tapped Goldman Sachs as its advisor.
The valuation process presents unique challenges for the investment banks involved. Goldman Sachs aims to maximize OpenAI’s valuation, while Morgan Stanley works to secure the greatest equity position for Microsoft, creating an adversarial dynamic between two of Wall Street’s most prestigious firms. Industry experts suggest the banks will examine historical precedents from disruptive technology companies like Apple during its early iPhone era, Google’s search market disruption, and Uber’s ride-hailing revolution to establish comparable valuations.
OpenAI’s recent fundraising round valued the company at over $150 billion, positioning it at the forefront of an AI revolution that consulting firm PwC projects will contribute nearly $16 trillion to the global economy by 2030. The San Francisco-based company, known for its groundbreaking ChatGPT platform, represents a transformative force in artificial intelligence that could reshape entire industries.
Interestingly, the financial rewards for the banks may be modest in the short term. Experts estimate fees could range from under $25 million to potentially under $100 million per bank — significantly less than typical merger or IPO advisory fees that can reach hundreds of millions. Some sources even suggest the work could be performed at minimal cost due to competitive pressures. However, the strategic value far exceeds immediate compensation. Securing this relationship positions Goldman and Morgan Stanley at the front of the line for future OpenAI transactions, including a potential IPO or major acquisitions.
The process could take up to six months and involves complex “landscape analysis” to determine whether OpenAI could eventually rival or replace established tech giants like Google. Sam Altman, OpenAI’s founder, is known for being “loyalty-driven” and placing premium value on trust and interpersonal relationships, which could benefit Goldman Sachs long-term. Morgan Stanley brings its own advantages, having maintained a longstanding relationship with Microsoft, including serving as the sole advisor on Microsoft’s $26 billion LinkedIn acquisition in 2016.
Key Quotes
You’re going to do battle
A senior tech banker at a midsize investment bank described the adversarial relationship between Goldman Sachs and Morgan Stanley as they represent opposing interests in the OpenAI valuation negotiations, highlighting the competitive tension inherent in the process.
The goal is to lock the relationship up
A senior technology dealmaker explained why banks are willing to accept potentially minimal fees for the OpenAI valuation work, emphasizing that securing long-term relationships with OpenAI and Microsoft far outweighs immediate financial compensation.
If it comes at a really high multiple, what does that mean? It means you can raise an enormous amount of money if you are an AI company
Michael Roberts, a finance professor at Wharton School, explained the broader market implications of OpenAI’s valuation, noting that a premium valuation would signal massive fundraising potential for AI companies across the industry.
This could be sort of the next Silicon Valley 3.0
Professor Michael Roberts compared the current AI banking opportunity to the Silicon Valley boom of 15 years ago, suggesting that AI company dealmaking could become the most lucrative area for investment bankers in the coming years.
Our Take
This story reveals the strategic chess game unfolding at the intersection of AI innovation and traditional finance. The willingness of elite investment banks to potentially work for minimal fees demonstrates how transformative they believe AI will be for their future business models. What’s particularly fascinating is the parallel to Elon Musk’s Twitter acquisition, where banks accepted significant risk for relationship access. The OpenAI valuation could establish the framework for an entirely new asset class — AI-native companies with unprecedented growth trajectories and economic impact. The six-month timeline and lack of clear precedents suggest we’re witnessing the creation of new valuation methodologies that will define how markets price artificial intelligence capabilities. Goldman and Morgan Stanley aren’t just valuing a company; they’re positioning themselves as gatekeepers to the AI economy’s future, which could prove far more valuable than any single transaction fee.
Why This Matters
This valuation process represents a watershed moment for the AI industry and Wall Street’s relationship with artificial intelligence companies. The outcome will establish critical precedents for how AI startups are valued and could trigger a new wave of AI-related dealmaking. If OpenAI receives a premium valuation, it signals to the market that AI companies can command extraordinary multiples, potentially unleashing massive capital flows into the sector.
The battle between Goldman Sachs and Morgan Stanley also illustrates how traditional financial institutions are positioning themselves for what experts call “Silicon Valley 3.0” — a new era where AI companies become the dominant force in tech banking. The strategic importance extends beyond immediate fees; winning this mandate provides insider access to one of the world’s most valuable AI companies and its influential founder.
For the broader business community, this valuation will serve as a benchmark for AI company worth and investment decisions. It affects venture capital strategies, corporate AI investments, and competitive positioning across industries. The $16 trillion economic impact projected by PwC underscores why financial institutions are willing to accept minimal short-term compensation for long-term positioning in this transformative sector.
Recommended Reading
For those interested in learning more about artificial intelligence, machine learning, and effective AI communication, here are some excellent resources:
Recommended Reading
Related Stories
- OpenAI CEO Sam Altman Hints at Potential Restructuring in 2024
- OpenAI’s Valuation Soars as AI Race Heats Up
- Wall Street Asks Big Tech: Will AI Ever Make Money?
- Apple Q4 Earnings Preview: Wall Street Sees AI Fueling iPhone Demand in 2024
Source: https://www.businessinsider.com/openai-valuation-process-goldman-sachs-morgan-stanley-fees-2024-10