OpenAI looks eerily similar to WeWork; Greetings from Switzerland
1) Investors who've been around a while will remember the crazy story of shared workspace provider WeWork...
It soared to incredible heights, peaking at a $47 billion valuation in 2019. But as the company was preparing to go public, investors saw its financials in the IPO prospectus, realized it was a house of cards, and fled.
Without the injection of new capital, WeWork imploded. It eventually went public in 2021 by merging with a special purpose acquisition company ("SPAC"). That flopped too, and WeWork filed for bankruptcy in 2023.
The saga was characterized by several red flags...
For one, the company had a much-too-young, inexperienced, weird yet charismatic CEO with a cult-like following. That was paired with lots of talk about changing the world and a mission, as the CEO claimed, to "elevate the world's consciousness."
WeWork had, at best, an unproven business model and, at worst, one that was never going to succeed. Plus, it had a ridiculous valuation and huge investments from foreign money like SoftBank, yet suffered massive losses.
And to top it all off, management had a plan to bail out early investors by foisting this turd on the public via an IPO.
As you read this, ask yourself: What company today sounds eerily similar?
The answer: OpenAI!
I've long been a skeptic of OpenAI and have written about it many times, most notably:
- OpenAI's 'code red' scramble (12/5/25)
- Alphabet's Google edges ahead of OpenAI (1/12/26)
I think OpenAI is being propped up by a series of circular deals, especially with Nvidia (NVDA). These are captured in this Bloomberg article's graphic that I included in my October 20 e-mail:
Here's an updated version of this graphic, which Bloomberg posted on January 22 in this article, A Guide to the Circular Deals Underpinning the AI Boom:
The article begins:
ChatGPT kicked off the AI boom, but it was a landmark partnership between its developer OpenAI and software giant Microsoft Corp. that laid its financial foundations.
This playbook has been repeated by the AI community ever since. Cloud computing companies and chipmakers – Nvidia Corp. chief among them – have helped to fund leading AI developers, which in turn became some of their largest customers.
The result is an increasingly interconnected web of dependencies between technology manufacturers and AI startups. The risk with these "circular" deals is that they can create skewed incentives that may lead to bad decision making and magnify losses if demand for AI fails to match today's lofty expectations. The stakes are high as the AI boom has sucked in gargantuan sums of money from debt and equity markets and buoyed multiple industries.
These circular relationships can keep a company like OpenAI going for a long time – but can collapse quickly. And I think we've reached a tipping point. Here's why...
First, Microsoft's (MSFT) stock dropped 10% on Thursday after reporting earnings – its largest daily decline in more than five years. That's in part because the company revealed how dependent its Azure cloud-computing platform is on OpenAI, which accounts for a shocking 45% of its $625 billion backlog.
Then on Friday, the Wall Street Journal dropped this bomb about how Nvidia is getting cold feet about pouring endless money into OpenAI, even if most of it is spent buying its chips:
Nvidia's plan to invest up to $100 billion in OpenAI to help it train and run its latest artificial-intelligence models has stalled after some inside the chip giant expressed doubts about the deal, people familiar with the matter said.
The companies unveiled the giant agreement last September at Nvidia's Santa Clara, Calif., headquarters. They announced a memorandum of understanding for Nvidia to build at least 10 gigawatts of computing power for OpenAI, and the chip maker also agreed to invest up to $100 billion to help OpenAI pay for it. As part of the deal, OpenAI agreed to lease the chips from Nvidia.
At the time, the ChatGPT-maker expected the deal negotiations to be completed in the coming weeks, people familiar with the plans said. But the talks haven't progressed beyond the early stages, some of the people said.
Nvidia CEO Jensen Huang scrambled to add that Nvidia would "absolutely be involved" in OpenAI's latest funding round. He also said, "We will invest a great deal of money, probably the largest investment we've ever made."
But the message is clear and the damage is done. If OpenAI were a publicly traded company, its shares would have been down massively yesterday...
In addition, I think this deal, which the WSJ reported on last week, is toast: Amazon in Talks to Invest Up to $50 Billion in OpenAI.
Amazon (AMZN) might throw $10 billion into the deal – chump change for a company that size – but there's no way management is dumb enough to incinerate $50 billion. I think the story is fake news, based on something along the lines of:
OpenAI CEO Sam Altman: "Would you consider investing $50 billion?"
Amazon: "Let us get back to you."
WSJ: "People close to the matter say Amazon is in talks to invest $50 billion."
The real-money bettors on Polymarket are increasingly skeptical that OpenAI will be able to go public this year, assigning it only a 53% chance. And I still think that number is high.
To be clear, I expect OpenAI will raise another big round of capital from large investors with a vested interest in propping it up. But that will likely be the beginning of the end...
In the end, I predict OpenAI will encounter financial distress – probably later this year. In addition to WeWork, it reminds me of Netscape, but worse, due to its huge cash burn.
As a result, it will likely have to be bailed out and absorbed by its largest investor, Microsoft.
Now, Microsoft is still an insanely great, cash-generating company, so I'm not saying to dump the stock. It's the very definition of a "buy and hold forever" stock, so a potential 20% dip is nothing to worry about.
In fact, Stansberry's Investment Advisory subscribers who followed our team's advice to buy it in 2012 are up 1,364% since then through yesterday's close. (If you aren't already a subscriber, you can learn how to become one right here.)
And if Microsoft can take over OpenAI at a distressed price, it could even increase Microsoft's value.
Meanwhile, I still think Amazon, Alphabet (GOOGL), and Meta Platforms (META) will be winners amid all this – as I discussed in last Wednesday's e-mail on the investment implications of the AI bubble bursting.
2) As part of my never-ending effort to bring you the best investment insights and ideas, I travel the world to see companies, meet with management teams, and connect with other smart investors.
That's why I'm currently in Klosters, Switzerland to attend my friend Guy Spier's annual ValueX conference with 150 other investors from around the world. The conference consists of dozens of five-minute presentations by attendees, followed by three minutes of Q&A.
As I do every year, I'll be catching up with old friends, making new ones, and hearing a range of investment ideas – the best of which I'll be sharing with you in upcoming e-mails (if I get the speakers' permission). So stay tuned...
In the meantime, here's a picture of Guy and me today:
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.