Less than seven months after launching its ad product, OpenAI's ChatGPT reached $1 billion in annualized ad revenue.

OpenAI may be the fastest business to reach that milestone with a digital product ever. Today's digital advertising leaders, including Alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL), Meta Platforms, and Amazon, took several years from ad launch to reach $1 billiion in annual revenue. ChatGPT's comparatively rapid growth is a sign of OpenAI's huge potential, and for advertising on chatbot platforms more generally.

How OpenAI got to $1 billion

Alphabet, Meta, and Amazon have all demonstrated how to build massive digital advertising businesses, and OpenAI took that model and ran with it, selling lucrative space on its platform to tens of thousands of advertisers. Among its biggest advertisers are Booking Holdings, Intuit, Home Depot, and L.L. Bean, showing that it's serving a wide range of ad verticals.

ChatGPT charges a similar rate to Google for ads, showing the chatbot is comparable to search in its value to advertisers. ChatGPT ads have lower click-through rates than Google because the chatbot is more conversational, and Google searches are often from users who are ready to buy. ChatGPT also has fewer users than Google Search, though the chatbot has reached 1 billion weekly active users.

As another sign of its potential, ChatGPT hit that milestone only by selling ads in North America. At the beginning of the month, it announced that it expanded ads to more than 40 countries, including India, and across Europe, the Middle East, and North Africa.

It also opened the ad product up to small and medium-sized businesses, which now represent a significant share of the business. Even though it's already reached $1 billion in ad revenue, OpenAI appears to just be getting started with the rollout of its ad product.

Why it's great news for AI stocks

Advertising may be the most successful business model of the digital era. Alphabet and Meta, the two biggest digital advertising businesses, have made a mint from selling ads on their properties, and Amazon followed the same strategy when it began selling ads on its e-commerce site. For all three, advertising represents a massive, high-growth, high-margin business.

The biggest knock on the AI boom is that start-ups like OpenAI won't be profitable. The bears argue that there simply isn't enough demand to justify the massive capital expenditures for the chips and data centers required to run ChatGPT and other chatbots.

Those fears may be overblown to begin with, but if OpenAI, Anthropic, and others can successfully tap into the digital advertising market, then that should ensure that they are profitable over the long term.

OpenAI's success with ads should help build support for the broader AI ecosystem, including chip stocks and the semiconductor equipment sector, as its improved chances of profitability will encourage greater investment in AI.

What's the best way to capitalize?

OpenAI is still a privately held company. Though there's no direct winner from OpenAI's advertising success, the most obvious stock to buy on the news is Nvidia (NVDA +1.34%). Nvidia is not only at the intersection of much of the AI infrastructure boom, but it's also a close partner of OpenAI, having invested $30 billion in the start-up and selling billions of dollars of chips to it as well. Its stake in the start-up means it will benefit if its valuation increases, and it will also benefit from OpenAI's increased spending power as it plans to deploy at least 10 Gigawatts of Nvidia systems.

If ChatGPT follows in the footsteps of Google, Meta, and Amazon, it could bring in $50 billion or more in ad revenue within the next decade. The experiment is clearly paying off, and advertisers like what they see. The success of ChatGPT ads is another sign that the AI boom is sustainable and transformative.