Microsoft CEO Satya Nadella (right) speaks as OpenAI CEO Sam Altman looks on at the OpenAI DevDay event in San Francisco on November 6, 2023.
Justin Sullivan | Getty Images
Microsoft’s huge investment in OpenAI is squeezing profits.
Following Microsoft’s quarterly earnings report on Wednesday, Chief Financial Officer Amy Hood said she expects the company’s profits to fall by $1.5 billion this fiscal year, primarily due to expected losses from OpenAI. He said that
Microsoft has invested nearly $14 billion in OpenAI, and its ChatGPT assistant has gone viral, inspiring a whole new industry called generative artificial intelligence. This trend has generated billions of dollars in new revenue for Microsoft.
But OpenAI is losing a lot of cash. The company is expected to lose $5 billion this year, excluding stock compensation, on sales of $4 billion, The Information reported earlier this month, citing documents.
Hood said that in Microsoft’s case, losses are accounted for using the equity method. A Microsoft spokesperson said the accounting method refers to a company’s share of the profit or loss of an investee company over a given period of time.
The additional details “are not due to changes in our partnership or investment in OpenAI,” a spokesperson said in an email. “Our partnership with OpenAI continues to pay off as we build differentiated IP and drive revenue momentum.”
The earnings announcement comes after Microsoft reported higher profits and revenue for its fiscal first quarter. However, the stock fell in after-hours trading after the company said its growth rate would be slower than expected.
While OpenAI is central to Microsoft’s growth strategy, the company has been de-risking after integrating OpenAI’s model into several products and serving as the startup’s exclusive cloud infrastructure provider. Microsoft’s GitHub subsidiary announced Tuesday that it will allow developers to use models from Google and startup Anthropic instead of OpenAI’s GPT-4o to power Copilot Chat functionality.
On top of the $13 billion invested in OpenAI as of September 30th, Microsoft injected an additional $750 million in a funding round announced in October, valuing OpenAI at $157 billion. .
Microsoft’s rivals are playing a similar game. Most notably, Amazon invested $4 billion in AI modeling company Anthropic, whose founder previously worked at OpenAI. Amazon will report its financial results on Thursday.
Although the disclosure of the OpenAI investment was a first for Microsoft, the company recorded more than $2.3 billion in other expenses over the past four quarters. The figure includes investment in OpenAI, a spokesperson said.
Microsoft CEO Satya Nadella said in an earnings call that the collaboration with OpenAI is mutually beneficial and the company is pleased with its “investment in OpenAI.”
OpenAI did not respond to a request for comment.
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