Microsoft-backed (MSFT) OpenAI has struggled to keep up with demand for its AI products. Indeed, earlier this year, when the company launched ChatGPT features that could turn photos into animated characters, usage spiked so sharply that OpenAI had to temporarily limit the tools. This led Chief Financial Officer Sarah Friar to say that the company is “massively compute constrained,” which means that it often delays launches or slows down products because it doesn’t have enough server power. To fix this, OpenAI plans to spend about $100 billion on backup servers over the next five years, according to The Information.
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This is in addition to the $350 billion it already expects to spend renting servers through 2030. Unsurprisingly, CEO Sam Altman has argued that having access to servers will be the biggest advantage in the AI race. He has even suggested that OpenAI might one day need more energy than the entire U.S. power grid to run its systems. Interestingly, the company is already maxing out its supply of Nvidia (NVDA) GPUs, and another hit product or feature could stretch its capacity even further.
As a result, OpenAI projects that it will spend an average of $85 billion a year on servers over the next five years. These huge costs explain why OpenAI expects to burn through $115 billion in cash by 2029, though it believes it will start generating positive cash flow in 2030. Therefore, executives say that the backup servers could eventually pay for themselves by fueling new revenue if product usage surges or breakthroughs occur. In addition, OpenAI plans to eventually build its own data centers and chips to become a full-stack AI company.
Is MSFT Stock a Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on MSFT stock based on 33 Buys and one Hold assigned in the last three months. In addition, the average MSFT price target of $626.88 per share implies 22.3% upside potential.
