Late Thursday night, Sam Altman dropped a bombshell on Twitter that should make every OpenAI investor rethink their thesis: "Tonight, we reached an agreement with the Department of War to deploy our models in their classified network."
Wait, the Department of War? That's what the Pentagon used to be called before 1947. Either Altman's being cheeky, or this is a Freudian slip about what OpenAI just became: a defense contractor.
Let's talk about what this means for your money, because this completely changes OpenAI's risk profile.
The upside: Government contracts are sticky and lucrative. The DoD has effectively unlimited budget for strategic technology, and AI for military applications (intelligence analysis, cybersecurity, logistics) is about as strategic as it gets. This could mean billions in recurring revenue with high margins and zero customer acquisition cost.
The downside: You just turned a commercial AI company into a dual-use technology provider, which comes with massive baggage. Export controls. Congressional oversight. Activist pressure. Talent retention problems when half your engineers don't want to work on military applications. And most importantly, regulatory scrutiny.
Once you're in the defense industrial complex, you play by different rules. Want to sell your AI model to European companies? Better get export clearance. Want to keep your training data private? Too bad, the government wants audit rights. Want to pivot your business strategy? Better check if it conflicts with your national security commitments.
There's also the competitive angle. If OpenAI is providing AI to the U.S. military, what does that mean for their commercial relationships with companies in China, Russia, or even Europe? This could fragment the market and lock OpenAI into a U.S.-only strategy, which limits their total addressable market.
What should investors do? If you're holding OpenAI indirectly through VC funds or secondary markets, you need to reprice this. The upside just got capped (government contracts have margin limits) and the compliance costs just went up. On the flip side, this reduces existential risk - the U.S. government is not going to let a strategic defense contractor go bankrupt.
For context, look at Palantir. They started as a CIA-backed data analytics company and eventually went public. Their government revenue is massive, but their commercial business took years to scale because of the defense contractor stigma.
OpenAI just made the same trade. They got guaranteed revenue and government backing. In exchange, they gave up optionality and became a strategic asset that Washington will never let operate freely.
If you're a retail investor dreaming of an OpenAI IPO, adjust your expectations accordingly.
