OpenAI Just Took the First Step Toward Its IPO. Here's How to Invest in the Stock Now.
Key Points
OpenAI confidentially filed its IPO registration information with regulators this month.
OpenAI's largest outside investor has economic ties to the artificial intelligence (AI) lab beyond an equity stake.
A new closed-end fund has a relatively large position in OpenAI and is offering a discounted management fee.
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This year is set to be the biggest year for initial public offerings (IPOs) in history. We've already seen a handful of big offerings so far, most notably Space Exploration Technologies, known as SpaceX, which came to market at a $1.77 trillion valuation. But that could be just the first of three mega-artificial intelligence (AI) companies making their market debuts this year.
One of those was OpenAI, which took the first steps toward its IPO, confidentially filing its registration statements with the Securities and Exchange Commission on June 8. But the company warned that the actual IPO date could sometime well in the future. "We have not decided on timing yet; it may be a while because there are things we want to do that are likely easier as a private company," the company said in a blog post announcing the filing.
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But investors looking to gain exposure to the leading AI lab don't have to wait for the IPO. There are several options to add it to your portfolio today.
Image source: Getty Images.
Invest in its largest outside shareholder
When OpenAI transitioned from a nonprofit to a capped-profit company in 2019, Microsoft (NASDAQ: MSFT) became an early investor in the for-profit subsidiary with a $1 billion commitment. It also integrated OpenAI's services into Microsoft's cloud computing platform, Azure.
Microsoft has since added $12 billion more to its investment. After OpenAI underwent further corporate restructuring, Microsoft now holds a 27% stake in the business. Although an IPO will dilute that stake somewhat, it's poised to remain the largest outside shareholder.
At a market value of about $910 billion based on private market transactions, that means Microsoft's stake is currently worth about $245 billion. That's about 8.5% of the company's total market cap as of this writing.
Microsoft will also benefit from a revenue share agreement through 2030. Microsoft receives 20% of OpenAI's revenue, up to $38 billion total. As part of the agreement, Microsoft no longer pays OpenAI for using its intellectual property. That provides further exposure to OpenAI's results over the medium term.
On top of that, OpenAI has committed to spending $250 billion on Azure services through 2032. That gives Microsoft the confidence to invest heavily in building out compute capacity to meet demand for Azure.
OpenAI is just a piece of Microsoft's total backlog of remaining performance obligations, which reached $627 billion last quarter. So the overall expected return on invested capital remains strong for the cloud computing business.
Although Microsoft offers much more than just exposure to OpenAI's economics, it's one of the best ways to invest in OpenAI's future success, along with one of its biggest partners.
Invest in a fund that holds the stock already
Multiple closed-end funds hold OpenAI shares in their portfolios, but for investors who want as much exposure to OpenAI as possible, one of the best options is Robinhood's Robinhood Venture Fund I (NYSE: RVI).
The fund opened in March, focusing primarily on AI and fintech companies. The largest holding in its first quarterly disclosure was Databricks, with a net asset value of $82 million, or about 12.5% of the fund's total value. However, the investment manager added $75 million worth of OpenAI in April, putting it on a roughly equal footing with the Databricks investment.
There are a few important considerations before investing in the Robinhood fund. First, it's common for closed-end funds to trade below their net asset value due to concerns about liquidation. That could result in increased volatility in the fund's share price, on top of the inherently volatile investments it holds.
The second consideration is the expense ratio. Investors will pay 3.13% of assets under management. Robinhood is offering a reduced management fee as an introductory rate through Aug. 27, bringing the total fee down to 2.13%.
Despite those concerns, the fund offers a concentrated way to gain exposure to OpenAI and several other high-profile private companies in the AI and fintech sector. It could be worth a small position for some investors.
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Adam Levy has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
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