OpenAI investors question its valuation

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0:17Good morning from the Financial Times. Today is Tuesday, April 14th, and this is your FT News Briefing. British military spending is being scrutinized, and OpenAI's new direction is spooking some investors. Plus, we look at how Lebanon has become a sticking point in U.S.-Iran negotiations. I'm Sonia Hudson, and here's the news you need to start your day.

0:52A key government advisor is publicly criticizing the UK's defense policy. Lord George Robertson authored the government's defense review and is also a former NATO Secretary General. He told the FT that Britain's leaders have shown a, quote, corrosive complacency towards defense, and that puts the country at risk. The government promised to spell out its 10-year defense funding plan by last autumn, but it has repeatedly postponed that. Now, this all comes as NATO countries are under increasing pressure to self-sustain militarily as U.S. President Donald Trump threatens to leave the alliance. A government spokesperson said, quote, we are delivering on the Strategic Defense Review to meet the threats we face.

1:42They added that the defense investment plan is being finalized and will be published as soon as possible.

1:54Investors in OpenAI are questioning its roughly$850 billion valuation. The group has made a flurry of changes recently to pivot to a new strategy. But some investors told the FT the moves could leave OpenAI vulnerable to its rivals, which is especially critical right now because the group is gearing up to go public. Here to tell us more is the FT's George Hammond in San Francisco. Hey, George. Hey. So what is OpenAI's new strategy?

2:24Raya Jalabi: So I think the first thing to say is that OpenAI would resist the idea this is a new strategy. They have focused for a long time, both on selling AI to consumers and that via their very popular chatbot, ChatGPT. But they've also had a smaller enterprise-focused business selling AI tools to businesses. And they are putting more emphasis on the latter. That is what we're describing here as a new approach. And this comes partly in response to the success of their main rival, Anthropic, selling AI tools to businesses. And I think OpenAI have seen that there are very clearly huge pools of revenue to be made by taking that approach.

3:02So, George, why are those moves making investors question OpenAI's valuation then?

3:08Raya Jalabi: So, OpenAI has achieved massive success by being the consumer company. And the way people have spoken about OpenAI in the last three years since they released ChatGPT is as the kind of Google of AI. So for some investors, the concern is that they are now trying to diverge from an area where they obviously have a lead. And they're going for a business where the quality of their model is obviously very competitive, but it's not quite as good as the top range from Anthropic. So in doing this, they may fall short of Anthropic. They may also leave themselves vulnerable on the consumer side to Google, which has been slightly slower to get into this race, but obviously has a formidable number of regular users and almost limitless money to throw into building its own consumer chatbot.

3:54All right. Well, what's the case for OpenAI's high valuation?

3:58Raya Jalabi: So as long as I've covered this company, which is about three and a half years, the story of OpenAI has been turmoil and crisis and lurching from one disaster to the next. And all the time, they have got bigger and better. Their models have improved. Their revenues have stepped up dramatically. So I think the sympathetic read is that it is a startup that's 11 years old. It's moving incredibly fast. And what that looks like sometimes is picking up projects and putting them down when they don't quite work. and taking a new tack. And I think you could regard what they're doing here and putting more emphasis on the enterprise business as a response to very obvious traction that they and their rivals are picking up, a very obvious effort to go and make more money by doing this.

4:41Raya Jalabi: And in the fullness of time, investors might come to celebrate that decision. Now, we've mentioned that the company is getting ready to go public. What kind of impact do you think that could have on the wider AI industry? So OpenAI are gearing up for public listings. So are Anthropic and in a separate field, so is Elon Musk's SpaceX. And these will be, we anticipate, the three biggest IPOs of all time. So they are going to put an interesting pressure on the public markets, which have just never had to absorb three private companies at this scale. There is then a question of which of the AI rivals will go first and try and take advantage of the available liquidity and very obvious demand for AI companies on the public markets.

5:24Raya Jalabi: And so OpenAI is seen as a proxy for the overall market for generative AI companies. It's been the pioneer in this space and its valuation will definitely have a read across for other AI companies. On the other hand, we have seen in the last six months in particular, this kind of curdling of public opinion around AI and uncertainty about its impacts. I think it's very hard to gauge where public sentiment will be on the technology and therefore on the companies building it in the six months or a year when these companies do go public. George Hammond is the FT's venture capital correspondent based in San Francisco.

5:59Thanks, George.

6:01Raya Jalabi: Thank you.

6:07Goldman Sachs reported its highest quarterly profits in five years yesterday. But that shining moment for the bank was dulled by its fixed income unit. The record profits were powered by equities traders. They brought in 27 % more in revenues than a year ago, which is higher than analysts expected. That's because of wild market swings from a series of geopolitical shocks. But the bank's fixed income, currencies, and commodities traders missed forecasts badly. Analysts were expecting a 10 % rise in revenues in that business, but instead they dropped 10%. Goldman blamed that on significantly lower net revenues in interest rate products and mortgages.

6:54The bank's share price fell almost 2 % throughout the day. But even with the decline in revenues in its fixed income unit, it was still the third best quarter for Goldman's trading business in its history.

7:12The fragile ceasefire hanging between the U.S. and Iran quickly came under pressure last week. Hours after it was announced, Israel bombed its neighbor Lebanon, and Iran saw that as a grave violation of the truce. In just 10 minutes on Wednesday, Israel struck dozens of locations across the country, killing over 350 people and injuring around 1 ,200. It was one of the the deadliest attacks in Lebanon's history, and Israeli strikes on the country have continued since then. The FT's Middle East correspondent, Raya Jalabi, joins me from Beirut to discuss the destruction she's witnessed. Hi, Raya.

7:53Hi, Sonia. So, Raya, you live in Beirut. What was that day like? It was a very strange day because most of Lebanon woke up that morning quite hopeful that there was some kind of ceasefire in the making, but everything seemed eerily quiet. And then just after two o 'clock, I was sitting at home and you hear this raft of missiles literally flying overhead and then massive explosions all across the city. And we've grown quite used to this, unfortunately. But what was so shocking is the intensity and the ferocity of those strikes. We'd never had so many come simultaneously in that way. And pretty soon we started to realize that Israel has struck a number of targets around the country, including one attack on a funeral processions.

8:36You also had attacks on aid distribution centers where people had been gathering medicines to distribute to displaced residents of southern Lebanon. In Beirut itself, in the capital, you had attacks that collapsed entire residential buildings in densely packed neighborhoods. Wow. Just to step back and give our listeners a bit of context here, why did Israel hit Lebanon just hours after the ceasefire was announced? I mean, it depends who you ask. Israel will say that they had been planning this operation and seized it at a moment to strike more than 100 Hezbollah targets across the country. But for the Lebanese, it was a lot murkier.

9:14I mean, I think especially the attacks on these densely packed residential and commercial areas didn't really make sense to many. And I think many people in Lebanon, certainly ones that I spoke to on the day as I went around interviewing residents of the city, they said that they felt like Israel was passing along a message, that it was saying that there may be a ceasefire with Iran, but that doesn't include Lebanon, and that Israel would continue to attack Lebanon as much as it wanted wherever it wanted. Raya, the ceasefire that we mentioned was between the U.S. and Iran, these attacks, obviously, Israel and Lebanon.

9:46What's the connection between those two conflicts, and what impact has this attack had on overall diplomacy efforts? In the days after Iran was attacked by the U.S. and Israel, its proxy forces in the region, including Hezbollah, decided to launch their own attacks in support of Iran. So in Lebanon, that looked like Hezbollah launching dozens of projectiles across the border at Israel. Now, Hezbollah has always been the crown jewel in Iran's regional proxy forces. So when it became clear that Lebanon would not be included in the ceasefire that was brokered between the US and Iran, then Iran was predictably quite upset.

10:26And it became a key sticking point in the negotiations between Washington and Tehran. And that seems to have pushed Washington to apply some kind of pressure on Israel. So since last Wednesday, there haven't been any major attacks on Beirut, although the attacks have continued across southern Lebanon quite violently. So with all that in mind, I mean, what's the state of diplomacy? Well, today we'll see historic talks happen between Israel and Lebanon's envoys to Washington. These talks are being overseen by the State Department. And they're historic because they're the first direct talks between the two countries, which have never helped diplomatic relationships since 1983.

11:01So it's a really big deal. Well, are the talks today between Lebanon and Israel expected to yield anything? I mean, most people would say no. I think both states are expected to list their respective grievances. The problem is, I think, beyond listing grievances, I don't really see a path forward for these talks, and nor do many analysts and politicians that I speak to. The issue of Hezbollah in Lebanon is relatively intractable. So it's hard to see how the Lebanese state can offer anything that will satisfy Israel. And Israel is not giving any indication that it's willing to give anything to the Lebanese state, including a cessation of violence.

11:35Raya Jalabi is the FT's Middle East correspondent. Thanks, Raya. Thanks. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news. Thank you.

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