The City is watching the silicon valley circus with a mixture of fascination and fiscal anxiety. OpenAI, the creator of ChatGPT, is reportedly eyeing a blockbuster flotation, sending shockwaves through the capital markets and triggering a frantic scramble among AI rivals to shore up their own balance sheets. This is not innovation we are witnessing. This is capital flight in reverse, a desperate bid to lock in liquidity before the bubble bursts or the regulators descend.
The numbers are staggering. We hear whispers of a valuation north of $80bn, which would make it one of the largest technology listings in history. But let us not get carried away by the hype. A company that burns cash faster than a London boiler room and has no clear path to profitability is not a sound investment. It is a bet on the collective madness of the market. And yet, the herd is stampeding.
What does this mean for the average Brit? Very little directly, but indirectly, everything. The AI arms race is a massive drain on global savings. Institutional investors, pension funds, and even sovereign wealth funds are ploughing billions into these ventures. If this proves to be a mirage, the ripple effects on gilt yields and inflation could be severe. The Bank of England, already struggling to tame price pressures, may find itself contending with a new form of financial contagion.
Consider the mechanics. OpenAI needs capital to train ever-larger models. Its rivals, such as Anthropic and Google DeepMind, are similarly ravenous. This is not a virtuous cycle of innovation. It is an arms race fuelled by cheap money and FOMO. But the era of zero interest rates is over. The cost of capital is rising, and the margin for error is shrinking.
Some will argue that this is the future of productivity, that AI will unlock growth and justify any valuation. This is the same logic that gave us the dot-com bubble and the crypto crash. The reality is more prosaic. Most AI companies have no moat. Their models are trained on public data, and their advantages are fleeting. The real value may lie not in the algorithms but in the proprietary data sets and compute infrastructure, which are increasingly controlled by a handful of hyperscalers like Microsoft and Amazon. OpenAI’s close ties to Microsoft, which has invested billions, raise questions about corporate governance and conflicts of interest.
For the Treasury, this is a double-edged sword. A successful flotation would generate a windfall in tax revenues and bolster London’s reputation as a tech hub. But it would also expose UK investors to a highly speculative asset class. The FCA should be sharpening its pencils, not rolling out the red carpet.
The timing is also curious. Interest rates are at their highest in 15 years. The IPO market has been moribund. Why now? Perhaps the founders sense a window of exuberance before the macroeconomic headwinds intensify. Or perhaps they need the cash to fend off rivals. Either way, the prudent investor should be wary.
I am reminded of the South Sea Bubble. Then, as now, investors were seduced by stories of transformative technology. Then, as now, the promise of untold riches concealed a more prosaic reality. The difference is that today’s bubble is global and digital. The crash, when it comes, will be faster and more systemic.
My advice to readers is simple. Do not chase the hype. Instead, watch the bond market. Rising yields are a leading indicator of stress. If the AI flotation flops, it will not be the end of the world. But it will be a wake-up call that the party is over.
In the meantime, the race to raise capital continues. The AI giants are competing not just for talent and data but for the lifeblood of any business: cash. And they are willing to pay any price. The question is whether the market will oblige, or whether sanity will prevail. Do not bet on sanity. Bet on volatility.
