You Can't Buy Stock in the Startup Behind ChatGPT. But You're Probably Invested in It Anyway

Initial public offerings (IPOs) can garner a lot of attention, which is particularly true for companies that are already in the limelight. That's exactly the case with OpenAI, the maker of ChatGPT, with recent reports suggesting that the AI company's highly-anticipated IPO could come as soon as the end of this year.

For retail investors worried about getting left behind, the good news is you don't need to be a tech titan or a billionaire with an inside track to invest in the company. If you have investments in the Magnificent Seven — Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla — or other big tech companies that have inked deals with the OpenAI, you already have exposure to the buzzy startup in your portfolio.

Even if you just own index funds within your 401(k) or brokerage account, the complex and symbiotic financial relationships OpenAI has with giant chip makers and hyperscalers means that you also stand to benefit if — or, as many would argue, when — the AI juggernaut reaches its full earnings potential.

How are investors already exposed to OpenAI?

The investments Silicon Valley heavyweights have made in OpenAI commonly take the form of what are called circular financing agreements. Although not without risks, these deals have the potential to help startups grow and boost revenue at established tech firms.

Agreements between OpenAI and huge tech firms like Nvidia, Microsoft, Amazon and Meta Platforms typically look something like this: The funding company invests a certain amount into a startup; in return, the startup pledges to use that money to buy their goods or services.

OpenAI's $10 billion investment from Microsoft in 2023, for example, gave it the funds to turn around and buy cloud computing capacity in Microsoft's Azure data centers.

"It's capital that's designed to go back to Microsoft, so... what they're really getting is $10 billion of cloud credits," says Michael Brenner, senior research analyst and asset allocation strategist at FBB Capital Partners.

OpenAI has similar agreements in place with Alphabet, Amazon, CoreWeave, Disney, Nvidia and Oracle, among other publicly traded companies. And while circular financing isn't new, it's become a huge driver of AI industry growth for a couple of reasons, says Jed Ellerbroek, portfolio manager at Argent Capital Management. "There are several layers to it," he says.

For one, the amount of cash startups like OpenAI are burning through to stay competitive would be difficult if not impossible to raise from other sources, especially at the speed they need to grow their computing power. Secondly, there's particular appeal for big tech firms investing in companies that rely on its products to grow. These deals generate demand and revenue for the legacy companies and give them a stake in fast-growing, leading-edge startups. In return, those startups get the capital they need to grow and improve their models.

This symbiotic relationship takes on another layer of significance when you consider how OpenAI's ChatGPT and other large language models are deployed by big tech firms, Ellerbroek says. "They also provide distribution" by integrating them into the cloud-based tech tools that office workers use every day. This gets more people familiar with and using these models.

"The biggest example is Microsoft and OpenAI… Microsoft owns between 25% and 30% of OpenAI, so Microsoft shareholders directly benefit from the success of OpenAI," he says. When corporations license Microsoft's suite of office tools — programs like Word, Excel, Teams and Outlook — that include its OpenAI-powered Copilot tool, both companies benefit, Ellerbroek adds.

The deal OpenAI made with Nvidia last fall — initially touted as a $100 billion deal, since narrowed to a still-significant $30 billion — is another good example: The chipmaker's investment gives OpenAI the money it needs to buy Nvidia's semiconductors — or buy computing capacity from other tech companies that power that activity with advanced Nvidia chips — that allow it to expand its computing power while also giving Nvidia a revenue stream now that lets it reap the potential benefits of its equity stake later.

"They're leveraging the hyperscalers for computing capacity, and hyperscalers represent about half of Nvidia's revenue," Brenner says.

How to get exposure if you aren't already invested

What all this means in practice, Brenner says, is that most ordinary investors' exposure to OpenAI right now comes via the startup's voracious appetite for computing power, which has fueled huge demand for both cloud capacity and processing hardware like chips.

If you have money in mutual funds or exchange-traded funds (ETFs) that are invested in large-cap tech stocks, you're already indirectly invested in OpenAI. Even broad index funds will give you exposure, given big tech's increasingly outsized market capitalization as a percentage of weighted indices like the S&P 500.

So while you can't directly invest in the company just yet, there are ways to benefit from its rapid growth, Brenner says. "If you're interested in getting exposure to OpenAI, step one would be to invest in their supply chain."

And if you're a more experienced, hands-on investor, there are ways to get even closer to the action, says Brian Mulberry, chief market strategist at Zacks Investment Management.

"There are a lot of ETFs out there, and you can kind of slice up different sectors to get the exposure you want," he says. "Look at ones that segment out software versus hardware. Right now, I would really be a buyer of some of these hardware names," he says.

"Obviously, we know Nvidia is the 100-pound gorilla in the room, [but] what we're finding is more and more data centers are being designed and built using a mix of technologies," Mulberry says, including products made by Nvidia competitors that don't cost as much.

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