Back in November, amid mounting speculation that OpenAI’s massive cash burn was massively unsustainable in light of the $1.4 trillion of funding commitments by the AI company, which in turn has sparked the biggest capex flood in modern history all on the hope that the company’s promised payments will be made good, OpenAI CFO Sarah Friar sparked a market selloff when amid an admission that OpenAI was “looking for an ecosystem of banks [and] private equity” to support its ambitious plans, she explicitly said that the US government would have to “backstop the guarantee that allows the financing to happen.”
In other words, as we explained at the time, when all the other sources of funds dried up – clearly a scenario the company is considering judging by her response – the company would have to come to the US taxpayer.
Friar further explained that “Federal loan guarantees would really drop the cost of the financing,” enabling OpenAI and its investors to borrow more money at lower rates to meet the company’s ambitious targets. Right… because there is nothing like a company with $14BN in revenue, $1 trillion in “valuation” and $1.4 trillion in commitments, than loading up to the gills with government-backstopped debt… if only Enron and Lehman had thought to do the same, both would still be around.
Anyway, after the market vividly demonstrated it was less than enthused by this proposal, sending shares in the AI sector sharply lower as it signaled OpenAI itself doubted it would have the financial wherewithal to meet its obligations, the company promptly shelved any discussion of a taxpayer bailout backstop Federal loan guarantee, and even prompted a rare tweet from Sam Altman to explain why Sarah didn’t really mean the things she said.
All that changed late last week, when Donald Trump caught much of the AI industry by surprise when he threw his weight behind a radical proposal for companies such as OpenAI to hand equity stakes to the American people.
Elements of the idea, which had started as a fringe argument on the progressive left, have recently drawn support from an unlikely cast of characters including Trump cabinet members, democratic socialists such as Bernie Sanders and Maga populists such as Steve Bannon.
But the concept suddenly gained more traction in the White House when – six months after OpenAI first flirted with the idea of a backstop – OpenAI chief executive Sam Altman visited Capitol Hill this week.
According to the FT, the plan proposed by his company, alongside others, would involve setting up a sovereign-wealth-style fund into which AI companies would contribute equity so the American public can share in the lossmaking sector’s soaring valuations. What was left unsaid is that while the “American public” would share in the soaring valuations, they would also share in the AI sector’s continued losses and, more importantly, would be on the hook for the hundreds of billions in commitments if OpenAI is unable to fund them.
Translation: OpenAI – which reportedly is worth just shy of $1 trillion on pre-IPO paper, is once again seeking a government bailout, pardon, backstop.
Such a plan would be distinct from the $9bn stake the Trump administration took in chipmaker Intel last year, as the public would own shares individually, rather than the US government directly owning equity, according to a person with knowledge of OpenAI’s plans.
In response to a question about equity stakes on Air Force One on Friday, Trump suggested “pieces [of AI companies] could be given to the American public” in an effort to quell the growing alarm around the rapid rollout of the technology. As if the American public can somehow sell its shares of OpenAI to offset soaring electricity prices.
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