Microsoft’s extensive investment in artificial intelligence powerhouse OpenAI is expected to impact its bottom line this quarter, Chief Financial Officer Amy Hood disclosed on Wednesday’s earnings call. Hood indicated that Microsoft would see a $1.5 billion reduction in income in the current period due to an anticipated loss from its stake in OpenAI.
Since initially partnering with OpenAI, Microsoft has funneled close to $14 billion into the AI innovator, whose ChatGPT tool has transformed industries and spurred widespread interest in generative AI. This investment has been pivotal for Microsoft, generating billions in new revenue across its products and services. However, as OpenAI scales rapidly, its operating expenses have risen sharply, with the company expected to incur losses of $5 billion this year on $4 billion in projected revenue, according to documents cited by The Information.
For Microsoft, the investment loss is recorded under the equity method, meaning it reflects Microsoft’s proportional share of OpenAI’s financial performance. This accounting treatment, the company clarified, doesn’t indicate any change in its strategic partnership with OpenAI, which remains a cornerstone of its AI growth strategy.
The earnings call followed Microsoft’s fiscal first-quarter report, which surpassed earnings and revenue expectations. However, shares dropped in extended trading due to Microsoft’s cautious guidance, which called for slower growth ahead.
OpenAI has become central to Microsoft’s AI-driven offerings, integrated across multiple products and exclusively hosted on Microsoft’s cloud infrastructure. Microsoft has also diversified its strategy by allowing GitHub users to utilize alternative AI models, including those from competitors Google and Anthropic, to power the Copilot Chat feature.
As of September 30, Microsoft’s cumulative OpenAI investments had totaled $13 billion, with an additional $750 million infusion announced in October, valuing OpenAI at $157 billion. Despite the near-term financial impact, Microsoft’s CEO Satya Nadella underscored that the OpenAI collaboration remains mutually beneficial, driving significant innovation and revenue growth across Microsoft’s ecosystem.
