OpenAI slashes funding target to $20 billion amid tech rout and AI spending jitters

The ChatGPT maker set a Friday deadline for investor commitments, but the first close is expected to raise less than $20 billion after some investors reduced their allocations, the FT reported. A consortium of UAE investors including state-backed technology fund MGX is expected to be the largest participant, with the deal expected to give OpenAI an option to lease newly developed computing capacity in the region. Venture capital firms Founders Fund, Coatue, Sequoia Capital and Andreessen Horowitz are also expected to participate, according to the report. Wealthy individuals will have the option to invest in a subsequent retail offering at the $1.25 trillion valuation.

The funding round was also upstaged by Anthropic, OpenAI’s arch-rival, which filed an S-1 on Monday ahead of its planned IPO next month, showing revenue growth and positive cash flow in the first half of this year. OpenAI, which is pursuing a listing in 2027, had been keen to close the round partly to get ahead of Anthropic’s imminent listing as the two tap a similar investor base, Reuters reported.

The timing coincided with a brutal week for technology stocks. Quarterly earnings from hyperscalers spooked investors. Alphabet’s cash flow sank deeper into negative territory in the third quarter, while the Google parent joined Meta and Amazon in charging ahead with massive spending plans. Alphabet fell about 12% on Thursday, its worst day on record. The Nasdaq index dropped 2.9% on Friday and is down 7.8% from its all-time closing high reached on October 6.

The prospect of sustained cash deficits was too much for S&P Global, which cut its outlook on Meta to “negative” from “stable” late Friday, citing negative cash flow and uncertainty around capital expenditure plans. S&P kept Meta at AA- but warned its leverage could top 1.0x as soon as 2027, the downgrade threshold for the current rating. It estimated Meta’s capex at $140 billion this year, topping $225 billion in 2027 and reaching $252 billion in 2028, with free operating cash flow remaining negative through that period. S&P said Meta’s ability to monetise its AI investments is more limited than that of peers, who lease compute capacity to frontier model labs and enterprise customers. In a statement to Fortune, a Meta spokesperson said the company disagrees with that assessment, pointing to “significant product and business opportunities” ahead and arguing that AI investments are already delivering “stronger engagement, better recommendations, and greater returns for businesses.”

Some voices remain bullish. Market veteran Ed Yardeni said the AI investment boom faces financial, physical and political constraints that, if they worsen, could lead to further stock declines, but called the constraints “healthy for the durability of the AI boom,” arguing that less readily available capital could encourage more efficient allocation. He expects hyperscalers to retain financing access and keep spending, and said further AI jitters “could set up buying opportunities rather than signal the end of the boom.”