Microsoft has disclosed its equity investment in OpenAI for the first time, according to an SEC filing. Microsoft previously disclosed its relationship with OpenAI as a “partnership.” The relationship between Microsoft and OpenAI has evolved in recent months.
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Microsoft has disclosed its equity investment in OpenAI for the first time, according to its latest SEC filings.
On Wednesday, the company announced its quarterly results. Microsoft has included information about its relationship with OpenAI in its legally required disclosures.
“We have invested in OpenAI Global, LLC (“OpenAI”) and have committed aggregate funding of $13 billion,” Microsoft wrote in an SEC filing Wednesday. “This investment will be accounted for using the equity method.”
In previous SEC filings, Microsoft described the nature of its relationship with OpenAI as a partnership rather than an equity investment.
“We have a long-term partnership with OpenAI, a leader in AI research and deployment,” Microsoft wrote in its annual SEC filing in late July. “We are deploying OpenAI models into consumer and enterprise products. As OpenAI’s exclusive cloud provider, Azure powers all OpenAI workloads. We also use OpenAI to accelerate research. We are increasing our investments in the development and deployment of purpose-built supercomputing systems.”
“Soft money”
Accounting expert Francine McKenna told Business Insider that the new disclosure indicates that all or part of Microsoft’s previous investments in OpenAI were “soft money” (such as service discounts and credits); He said this suggests the software giant’s internal spending was below certain standards. There is no need to publish details.
A Microsoft spokesperson said Wednesday that there are no changes to the partnership or investment with OpenAI.
In early October, OpenAI closed a $6.6 billion funding round, with Microsoft also participating in the deal. OpenAI has also begun the process of transitioning from a mostly nonprofit organization to a more traditional for-profit business.
Exceed the “threshold”
McKenna, who writes the newsletter The Dig, said Microsoft’s new “equity method investment” disclosure marks a new phase in its relationship with OpenAI, at least from an accounting perspective. He said that
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“They may have had previous equity investments, but they didn’t disclose them because they probably didn’t matter because they had soft money credit and minimal or no cash,” McKenna said. “In the latest round, we crossed the threshold.”
Microsoft has even started disclosing changes in the value of OpenAI stock, according to an SEC filing on Wednesday.
McKenna added, “Disclosure from ‘partnership’ to ‘equity method investment,’ including recording losses on stocks, is a major change.”
During a conference call with analysts on Wednesday, Microsoft was asked about changes in its relationship with OpenAI.
According to one article, Microsoft’s Chief Financial Officer (CFO) Amy Hood said, “In order not to get too heavy on the earnings call, I just want to remind you that this was done under the equity method. “We only calculate the percentage of loss each quarter,” he said. Call recording.
Microsoft has had a relationship with OpenAI since 2019, using the startup’s large-scale language models to power its generative AI products, including its AI assistant Copilot. In return, Microsoft will provide OpenAI with extensive cloud computing resources.
The relationship between the two companies has evolved in recent months. Microsoft listed OpenAI as a competitor for the first time in a July filing.
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