Microsoft and OpenAI may have a notoriously rocky relationship but as OpenAI experiences never-before-seen revenue growth, Microsoft, one of its major investors, is benefiting greatly.
When the software giant reported its latest quarterly earnings on Wednesday, it dropped this rather large nugget in: Its net income increased by $7.6 billion from its investment in OpenAI.
OpenAI reportedly has a 20% revenue share agreement with Microsoft (though neither company has ever publicly confirmed that). The software giant has invested more than $13 billion in the AI lab, which is currently looking to raise additional funding at a valuation between $750 billion and $830 billion, Bloomberg reported.
In September, Microsoft and OpenAI renegotiated some of the terms of their deal when OpenAI restructured into a public benefit corporation.
As part of that deal, OpenAI agreed to buy another $250 billion of Azure services. That commitment shows on Microsoft’s books as “commercial remaining performance obligations,” or contracts that Microsoft has that have not yet been paid out. Those obligations leaped to $625 billion from $392 billion in the previous quarter. Microsoft said that 45% of that is from OpenAI.
Anthropic got a shout-out in the quarterly earnings, too, in helping boost Microsoft’s anticipated future revenue in the form of commercial bookings, which grew 230%. In November, Microsoft announced that it was investing $5 billion into Anthropic and the AI lab had signed up for $30 billion of Azure compute capacity, with intent to buy more later.
But Microsoft is also spending big to feed the AI machine. It spent $37.5 billion in the quarter on capital expenditures, two-thirds of which were for what Microsoft called “short-lived” assets: primarily the GPUs and CPUs for its cloud Azure to serve AI.
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The company reported $81.3 billion in revenue (Wall Street analysts expected $80.27 billion, so that’s a solid beat), up 17% over the year-ago period. Its Microsoft Cloud revenue hit $50 billion this quarter for the first time. All of Microsoft’s business units increased by double-digit percentages over the year-ago quarter with the exception of Windows devices, which gained 1% (essentially flat), and Xbox content and services, which were down 5%.
