Risk is two sided: Bank of America analyst warns AI giants rushing to sign deals with ChatGPT maker OpenAI

Bank of America analyst Justin Post has warned that major technology companies face a dual threat as they rush to secure partnerships with ChatGPT maker OpenAI. The analyst cautioned that these deals could damage cloud providers regardless of whether the Sam Altman-backed AI startup succeeds or fails. While the industry currently favours high capital expenditure and rapid deal-making, the investment bank analyst highlights the paradox of hyperscalers funding an entity that is simultaneously a partner and a competitor. Post claimed that investors must look beyond current spending trends to understand how these agreements reshape the market landscape.

"The strategic risk is two-sided. If OpenAI succeeds, it becomes a bigger competitive threat; but if the company underachieves internal targets, it may under-utilise its contracted compute, contributing to excess capacity and lower Cloud industry revenues,” Post said to Business Insider. He said this, referering to deals worth billions of dollars that OpenAI has already inked with tech majors inclduing Microsoft, Google, Amazon Web Services, Oracle and others.




"We think the rational for adding OpenAI as a cloud customer could be threefold: 1) important to drive Cloud AI scale, and OpenAI would be able to find capacity elsewhere, 2) potential for deeper partnerships to bring OpenAI's frontier models onto Cloud platforms (though Microsoft deal dependent), 3) will be manageable exposure at less than 10% of total Cloud revs," Post explained.

How OpenAI can be a threat to the companies it's signing deals with

Post added that OpenAI expects to continue expanding and could eventually become a competitive challenge to major tech firms in both enterprise and consumer markets. This may include moving into areas such as advertising and agent-based transaction platforms that can complete tasks and make purchases for users.

He noted that large hyperscalers are not the only companies that could face pressure as the startup grows. The bank’s analyst also believes that OpenAI will compete for marketing and advertising budgets, which could affect companies like Facebook parent Meta and Google’s YouTube.

“All in, OpenAI is targeting $41bn in new product revenue by 2030 which likely includes advertising and eCommerce commissions, which would represent roughly 8% of our 2030 advertising/eCommerce commission industry forecasts," Post highlighted.

He explained that partnerships with OpenAI have provided short-term benefits to some tech companies, including increases in stock prices. However, Post pointed out that the ChatGPT maker should still be viewed as a competitive threat.

“Weighing the pros and cons, we still view OpenAI as a net competitive threat to Big Tech Internet, with the competitive risk across search, eCommerce, and enterprise AI outweighing modest cloud revenue risk (OpenAI less than 5% of AWS revs),” Post continued.