Microsoft disclosed in a quarterly filing that it has made total funding commitments of $13 billion to OpenAI, one of the largest investments in the company. This investment has contributed to a $683 million expense related to equity investments recorded by Microsoft. The losses from OpenAI are expected to increase significantly in the next quarter, which will lead to roughly negative $1.5 billion in other income and expense. While OpenAI is not the only factor contributing to this line item, its losses are starting to have a significant impact on Microsoft’s bottom line.
Despite the financial hit from the OpenAI investment, Microsoft’s CFO, Amy Hood, emphasized that the company’s overall AI business is thriving, with a $10 billion annual revenue run rate expected in the second quarter. Microsoft has reported profits of around $25 billion in its latest quarter, and its AI business is slated to be the fastest-growing segment in the company’s history. Hood highlighted the disciplined focus on cost management and prioritization across all teams, ensuring continued growth and leadership in AI across the Microsoft Cloud.
The disclosure of OpenAI’s impact on Microsoft’s financial statements comes after reports of tensions between the two companies and Microsoft’s efforts to diversify its AI offerings by partnering with other companies. Microsoft has worked with Anthropic and Google to provide alternatives to ChatGPT, the AI technology produced by OpenAI. However, Microsoft CEO Satya Nadella reiterated the value of the partnership with OpenAI, emphasizing the economic interest Microsoft holds in a company that has grown significantly in value. Usage of Microsoft’s Azure OpenAI service has doubled in the last six months, contributing to a 33% increase in Azure cloud revenue.
Nadella highlighted the success of the partnership between Microsoft and OpenAI, emphasizing that Microsoft made a strategic investment in OpenAI years ago that has resulted in great achievements for both companies. He expressed confidence in the investment stake in OpenAI and the mutual success that both companies have experienced. The partnership continues to be beneficial, with Microsoft providing the infrastructure needed for OpenAI’s innovations and leveraging AI models created by OpenAI. Nadella stressed the importance of pushing each other to do more and build upon the success achieved thus far.
Overall, OpenAI expects to lose about $5 billion this year, according to financial documents reviewed by the New York Times. Microsoft’s investment in OpenAI has led to significant losses, but the company remains committed to the partnership and continues to see value in the relationship. As OpenAI’s losses grow, it will be important for Microsoft to navigate the impact on its financial statements carefully. The success of Microsoft’s AI business and the partnership with OpenAI will continue to play a crucial role in the company’s future growth and innovation strategies.
