RPT-BREAKINGVIEWS-AI titans offer different kinds of profit warnings

By Robert Cyran

NEW YORK, June 18 (Reuters Breakingviews) - Elon Musk-run xAI and arch-rival OpenAI are pitching very different visions of the future of artificial intelligence. The industry should hope it steers between the two. As it seeks fresh funds to cover the $1 billion in cash it’s burning each month, xAI is projecting that it will hit break-even by 2027, according to Bloomberg. That’s two years ahead of OpenAI’s anticipated schedule, while assuming far less revenue. Both may imply grim outlooks – either that spending will fizzle, or success comes with feeble profitability.

What’s clear is the overwhelming appetite for capital. Between debt and equity, xAI is looking to raise around $9 billion, adding to $4 billion on hand. It expects to burn through that much in 2025, Bloomberg reported, as it spends on enormous data centers stuffed with data-crunching chips.

Earlier this year, OpenAI boss Sam Altman sealed an up-to $40 billion funding round led by SoftBank 9984.T. Half of the sum depends on the company tweaking its corporate structure. Nonetheless, it’s finding new ways to spend money. In May, OpenAI agreed to buy iPhone designer Jony Ive’s startup at a $6.5 billion valuation in an all-stock deal. In January, it joined SoftBank and Oracle ORCL.N to announce the $500 billion Stargate data center project. It might even build a social network, the Verge reported.

This adds to an already very expensive venture. Chatbots require reams of data and computing grunt to train and serve up answers. OpenAI thinks it will only start generating positive cash flow in 2029, when it foresees revenue reaching a gargantuan $125 billion on a rising tide of user adoption.

XAI puts on a braver face. It expects to get past break-even on only $5.4 billion of revenue in 2027, up from this year’s $500 million, Bloomberg reports. This growth in sales would be dwarfed by a $15 billion improvement in cash flow, though, potentially indicating an expected steep decline in spending. Musk, for his part, said in a post on X that Bloomberg "is talking nonsense."

Any spending slowdown would be a big surprise to Musk’s fiercest competitors. Giants like Microsoft MSFT.O, Alphabet GOOGL.O and Alibaba 9988.HK are putting enormous sums towards developing super-human intelligence. One of the few things that could slow their pace is if AI turns out to be far less lucrative than currently imagined.

On the other hand, OpenAI’s projections imply a brutal slog to reach positive economics. Its partner Microsoft boasts a top line only twice Altman’s goal, but notches an operating profit margin of over 40%. That the ChatGPT developer can only foresee a glimmer of profitability at this kind of scale indicates long odds of success. Both firms hint at ways that AI hype could be dashed on the rocks.

Follow Robert Cyran on Bluesky.

CONTEXT NEWS

xAI, the artificial intelligence and social media company controlled by Elon Musk, is seeking to raise $5 billion of debt and over $4 billion of equity, Bloomberg reported on June 17. The company is burning through $1 billion in cash, according to the report, but expects to generate positive cashflow in 2027. In a post on X, Musk wrote that Bloomberg "is talking nonsense."

In March, rival OpenAI announced that it would raise up to $40 billion in a funding round led by SoftBank. The company does not expect to turn cash flow positive until 2029, Bloomberg previously reported.