OpenAI ARR Snafu Highlights Flawed Metric

Here’s a news flash: The quasi-revenue numbers for OpenAI that got wide circulation last week were off— way off.  Instead of $70 billion in annualized revenue, as we and others reported, OpenAI is generating closer to $50 billion in annualized revenue (sometimes shortened to ARR). A Financial Times report of the lower number on Thursday proved such a shock to investors that stocks of chip firms and neoclouds, including Nvidia, CoreWeave, Nebius and others, fell on the news, CNBC reported.

The cause of this debacle is complicated. But it’s a reminder that we all rely too much on annualized revenue as a way to track a company’s performance. It’s become a standard measure for AI companies because their revenue has been growing by leaps and bounds, making the more common quarterly reports seem a little quaint in their backward-looking nature. But taking one month’s revenue and multiplying it by 12, as is the standard way these annualized-revenue numbers are calculated, is a poor substitute for a fuller picture of a company’s performance. (This isn’t a new issue—see this 2020 story on the subject.)