Microsoft Unveils $13 Billion Bet on OpenAI, Deepening AI Partnership Despite Forecasted Losses

Microsoft has disclosed its investment in OpenAI for the first time, revealing a total commitment of $13 billion, which is accounted for using the equity method. This information was part of a legal disclosure, underscoring a shift in Microsoft's approach towards its relationship with the artificial intelligence company.

Previously, Microsoft had characterized its collaboration with OpenAI as a partnership rather than an equity stake. However, the recent filing to the U.S. Securities and Exchange Commission marks a significant accounting change, suggesting a deeper integration between the two entities. According to accounting expert Francine McKenna, earlier investments by Microsoft may have been in the form of "soft money"—discounts or credits—and thus didn't require detailed disclosures. The current disclosure indicates these investments now meet certain thresholds, necessitating greater transparency.

This sizable financial commitment has exerted pressure on Microsoft's earnings, with CFO Amy Hood announcing an anticipated $1.5 billion hit in the upcoming fourth quarter due to expected losses related to this investment. The impact is reported using the equity method, which implies recognizing a share of OpenAI's net income or loss proportional to Microsoft's stake.

Despite recognizing losses, a Microsoft spokesperson emphasized that the change in accounting practices doesn't alter the nature of the partnership. The relationship continues to yield results, with both companies developing differentiated intellectual property and driving revenue growth. Microsoft has been OpenAI's exclusive cloud provider, using its Azure platform to support all of OpenAI's workloads and investing in supercomputing systems to advance AI research.

With this new stage in their relationship, marked by equity investment disclosures, Microsoft aims to solidify its position in the rapidly evolving AI landscape. While portraying OpenAI as a competitor in a recent filing, Microsoft continues to leverage OpenAI's models across its consumer and enterprise products, reinforcing the duo's collaborative innovation strategy.