CNBC’s MacKenzie Sigalos joins 'Money Movers' to discuss OpenAI's potential blockbuster valuation deal.

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The release of Open AI's ChatGPT has accelerated the development of artificial intelligence and warnings about its impact on society.

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OpenAI is pursuing a valuation of $500 billion through discussions with investors about a potential employee share sale. This secondary sale is expected to be larger than the previous $1.5 billion employee share buyback, driven by increased investor demand and more employees becoming eligible to sell shares due to the company's two-year hold rule.

The company is also undergoing a major restructuring, transitioning to a public benefit corporation as part of a $40 billion fundraise. OpenAI continues to negotiate with Microsoft, which is expected to hold a significant equity stake in the new entity. The company is also seeking greater flexibility in its partnerships and computing resources, while aiming to retain top AI talent amid industry competition.

OpenAI targets $500B valuation

Welcome back. Open AI is setting its sights on a blockbuster half a trillion dollar valuation. Half a trillion. Take that in. It's in talks with investors around a potential employee share sale. Mackenzie Sagalos digs into this for us in today's tech check. Mack. Hey there Morgan. So I spoke to a person close to deal talks and we know that the secondary will be bigger than that one point five billion dollars. The amount of equity involved in the last employee share buyback. And a part of why we're seeing that floor rise is simply timing. So open AI has a two year hold rule. As more time passes more employees are eligible to sell. Now the other big factor here is investor demand. Now even for open AI this is moving very fast. Talks of the deal only started last Wednesday which was right after the startup finalized allocations for the eight point three billion dollar primary round. Now that round was five X oversubscribed and left a lot of investors frustrated with how little they got. Now normally open AI waits months after announcing a raise to run a secondary sale. But this time they're moving much faster because of the overwhelming V.C. appetite. So the startup is effectively lining up new primary capital and an employee share sale in tandem reflecting just how much investor demand there is to get in. Thrive Capital has been the most vocal about wanting this to happen and is currently the furthest along in talks to lead it. This shows SoftBank is also in a good place. That 40 billion dollar raise announced in March raised a lot of eyebrows especially with a valuation that was double from its last round. But now Masa is starting to look pretty wise given the demand and valuation that we're looking at now. Morgan Yeah it's pretty nuts to me whether it's open AI or whether it's SpaceX and private stripe in this bucket a number of others too. I mean to me one of the bigger stories here isn't whether opening is going to go public anytime soon. It's how liquid the secondary markets have become. And when you do see things like tender offers and employee share sales and investors finding ways to get in like there's not as much of a rush to go public because of these instruments. No there isn't. And that's why you know the most that we've gotten from the company is CFO Sarah Fryer saying that an IPO would be considered if and when the company and market are ready. And really the top thing on open eyes to do list at the moment is this big restructure. And that's that's a key stipulation of the 40 billion dollar fund raise. So currently they've got that nonprofit parent entity but they're going to turn themselves into a public benefit corporation this PBC where they're legally required even though they're a for profit structure to serve both the public good as well as shareholder interests. And so even if they wanted to go public now which when you have secondary markets that are this liquid there's not as much of an appetite for it. That needs to happen first. And the other big thing on their plate is these deal talks with Microsoft. They're happening almost daily at this point. They're renegotiating certain terms and it's two different conversations. They have that commercial contract with them. But there's also you know the question of what that relationship looks like going forward because it's been pretty cozy so far. I mean what we know is not really up for debate is the 30 to 35 percent equity that Microsoft will have in this newly formed for profit entity. But there are questions about you know can open I kind of expand out who it's able to work with in terms of cloud providers. And I'm sure Microsoft doesn't like hearing that because their Azure business is really just had a blockbuster quarter in large thanks to working with them. And then the other thing that open I really wants to get more flexibility on is compute. And we've already started starting to see them diversify through Stargate with core. We've an Oracle. Yeah. And of course they want to hang on to their talent. Right. So that's a piece of it too. Given what Metta and others are doing in the midst of this new A.I. talent war. Mackenzie Gallo. Thank you for breaking it all down.

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OpenAI targets $500B valuation

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