NEW YORK, Sept 16 (Askume Breakingviews) – As investors assess OpenAI’s valuation, they might consider this humble paper clip. Cautionary tales about corporate profit-maximizers building robots so good at producing office supplies that they wipe out humanity may seem far-fetched. But dedicated capitalists can make the economically rational decision to take such risks. As OpenAI races to raise funding that could lead to a $150 billion valuation, the implicit promise is that profits will be so big that risk is just around the corner. That in itself highlights the hurdles to growth.
The story of the paper clip goes something like this. One day, engineers at ACME Office Supplies unveiled a highly sophisticated artificial intelligence machine with one goal: to produce as many paper clips as possible. Silicon’s unparalleled intelligence took this task to the extreme, turning every molecule on Earth into a paper clip and instantly ending all life.
Profit-hungry OpenAI investors such as Microsoft (MSFT.O) could be seen as focusing only on short-term gains like ACME, which would run the risk that they would create their own paperclip maximizer. OpenAI CEO Sam Altman said he is aware of the risks. His company was structured to limit bad incentives and limit the leverage that investors receive. Now, that protection deserves an asterisk: In 2019, early investors’ leverage was capped at 100x . OpenAI initially hoped that would decrease over time. Askume reports that the company’s latest funding now depends on changing that structure, including removing the limit .
It’s an eye-popping idea. According to Bloomberg, if OpenAI reaches a valuation of $150 billion — 74% higher than the previous benchmark — the 100x cap would only apply if the valuation hits $15 trillion, which is more than Alphabet’s (GOOGL.O) market capitalization , and even more than Amazon.com ‘s. This may sound strange, but in the complex world of artificial intelligence, the math can actually be calculated. Suppose the Paperclip Maximizer plots the value of each US citizen (about 330 million people). This shows that each American is worth a little over $45,000. This is well below the country’s per capita gross domestic product (GDP) and the Department of Agriculture has found their counterparts are worth less than $11 million in 2022. The total value could be in the trillions.
The truth is that anything so obviously dangerous will attract regulation. Competition regulators have begun reviewing OpenAI; the White House is holding meetings with industry leaders. Real, extinction-level risks will invite security states to clamp down on them. And, for investors anyway, all the hype could lead to an even worse outcome: AI could become pointless. In May, Google added its much-anticipated artificial intelligence to search, but at the end politely suggested that users put gum on their pizza. OpenAI is probably no more dangerous than a regular old paper clip. With this possibility in mind, valuation exercises become more routine.
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According to a Bloomberg report on September 11, OpenAI, an artificial intelligence model developer that powers the chatbot ChatGPT, is in talks to raise US$6.5 billion with a valuation of US$150 billion. It was reported on September 13 that under the agreement, the company has directed investments into subsidiaries with “profit limits”, thereby limiting profits for backers.
