Microsoft CFO says OpenAI investment will hurt profits this quarter


Microsoft CEO Satya Nadella, right, speaks as OpenAI CEO Sam Altman speaks during the OpenAI DevDay event in San Francisco on November 6, 2023.

Justin Sullivan | getty images

MicrosoftThe massive investment in OpenAI is having an impact on earnings.

Following Microsoft's quarterly earnings report on Wednesday, CFO Amy Hood said she expects the company to lose $1.5 billion in revenue in the current period, largely due to expected losses from OpenAI.

Microsoft has invested nearly $14 billion in OpenAI, whose ChatGPT assistant has gone viral and inspired a whole new industry called Generative Artificial Intelligence. This trend has generated billions of dollars in new revenue for Microsoft.

But OpenAI is losing bundles of cash. The company is expected to suffer a loss of $5 billion on revenue of $4 billion before stock-based compensation, The Information reported earlier this month, citing documents.

Hood said that for Microsoft, losses are accounted for under the equity method. A Microsoft spokesperson said the accounting approach refers to the company's share in the profits or losses of the invested company over a certain period.

The additional details “are not due to a change in our partnership or investment in OpenAI,” the spokesperson said in an email. “Our partnership with OpenAI continues to deliver results as we build differentiated IP and drive revenue momentum.”

The earnings call came after Microsoft reported a decline in earnings and revenue for the first quarter of the fiscal year. However, the stock fell in extended trading after the company forecast slower-than-expected growth.

While OpenAI is a central part of Microsoft's growth strategy, the company is hedging its bets by integrating OpenAI's models into multiple products and acting as the startup's exclusive cloud infrastructure provider. On Tuesday, Microsoft's GitHub subsidiary said it would allow developers to power the CoPilot chat feature with models Google Or startup Anthropic instead of OpenAI's GPT-4o.

As of September 30, Microsoft had invested $13 billion in OpenAI, in addition, the company put in another $750 million in a funding round announced in October, valuing OpenAI at $157 billion.

Microsoft's rivals are also playing a similar game. AmazonNotably, it has invested $4 billion in AI modeling company Anthropic, whose founder previously worked at OpenAI. Amazon reports earnings on Thursday.

The disclosure of the OpenAI investment was new for Microsoft, but the company has recorded more than $2.3 billion in other spending over the past four quarters. The spokesperson said this number includes the investment in OpenAI.

On the earnings call, Microsoft CEO Satya Nadella said that the collaboration with OpenAI has benefited both parties and that the company feels good about “our investment stake in OpenAI.”

OpenAI did not immediately respond to a request for comment.

Watch: Oppenheimer downgrades Microsoft: OpenAI losses have not been properly valued

Oppenheimer downgrades Microsoft: OpenAI losses have not been properly valued

Leave a Comment

“The Untold Story: Yung Miami’s Response to Jimmy Butler’s Advances During an NBA Playoff Game” “Unveiling the Secrets: 15 Astonishing Facts About the PGA Championship”