THE GIST <\/h3>\n
Sam Altman made it official bright and early Monday morning: OpenAI is seeing other people.<\/p>\n
Microsoft will stay the ChatGPT-maker\u2019s \u201cprimary\u201d cloud partner, but OpenAI can now serve products across any cloud.<\/p>\n
Microsoft\u2019s stock promptly dumped on the announcement, recovered, and is now trading red 0.37% at the time of writing.<\/p>\n
WHAT HAPPENED <\/h3>\n
The official reason for OpenAI\u2019s and Microsoft\u2019s seemingly amiable shift from monogamy to polyamory is the same justification AI companies have been screaming at the rest of the world: Get on board or get left behind.<\/p>\n
In a joint statement from both companies, OpenAI and Microsoft explained that because of this unavoidable, inescapable \u201crapid pace of innovation,\u201d they are now seeing it as necessary to \u201cevolve\u201d their partnership to selflessly \u201cbenefit our customers and both companies.\u201d This \u201camended agreement\u201d is meant to \u201csimplify\u201d their partnership while remaining focused on the broader end goal of \u201cdelivering the benefits of AI broadly.\u201d Both companies’ main prerogatives here are to \u201cbuild and operate AI platforms at scale\u201d while looking ahead to \u201cnew opportunities.\u201d<\/p>\n
Favorable preambles aside, this announcement feels like OpenAI and Microsoft are telling the kids they\u2019re getting divorced.<\/p>\n
Microsoft will remain OpenAI\u2019s \u201cprimary\u201d cloud partner, and any updated model and product will ship to Azure first. If Microsoft doesn\u2019t want them for any reason, they can choose \u201cnot to support the necessary capabilities.\u201d Probably the biggest line in this section is that OpenAI can now serve its products to customers \u201cacross any cloud provider.\u201d Before, they were tied to Microsoft as an exclusive host and IP licensee. Those days are over, which means they will start splitting capacity across Azure, AWS, Oracle, CoreWeave, and more. If you thought OpenAI\u2019s inference costs were high now\u2026 just wait.<\/p>\n
Microsoft will no longer have to pay a revenue share to OpenAI. Based on numbers from TechCrunch, this is around 20% of Bing and Azure OpenAI revenue, which could be a likely high-hundreds-of-millions-per-year revenue stream from Microsoft just for OpenAI to buy their freedom. The real kicker is Microsoft is still getting paid by OpenAI \u201cthrough 2030,\u201d but is now \u201csubject to a total cap,\u201d which remains confidential, though rumors suggest 20%.<\/p>\n
Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we’ll show you why it’s our #1 pick. Tap here.<\/strong><\/em><\/p>\n The biggest red flags in this announcement were, as we\u2019ve grown accustomed to, the things not said: where does this leave Microsoft, where is OpenAI getting the money to do this, and what happened to AGI?<\/p>\n<\/p><\/div>\n This mild breaking up of two of the biggest tech\/AI companies was a long time coming, with tiered announcements released throughout the year. Microsoft\u2019s biggest problem, which is likely to be reflected in future earnings reports via its cloud segment, is Azure. Azure\u2019s remaining Performance Obligations (RPO) totaled $625 billion, of which 45% was from OpenAI-related business activities. CFO Amy Hood even told investors on the company\u2019s second-quarter earnings call not to worry about the concentration.<\/p>\n Given that OpenAI is going multi-cloud, that worry has shifted from being too concentrated to possibly not existing at all in the future. This will certainly be something to watch in the next few days as Microsoft prepares for its Q3 earnings and possibly addresses whether OpenAI\u2019s future share of RPO is stable, rising, or being offset.<\/p>\n OpenAI officially closed its biggest-ever funding round at $122 billion at the end of March. Their valuation now sits around $852 billion, and OpenAI has also raised $3 billion from individual retail investors for the first time, reports CNBC.<\/p>\n They got what they wanted from Amazon, Nvidia, and Softbank, but with requirements. Amazon has to see OpenAI go public or reach AGI, $35 billion is on the line there. SoftBank backed its commitment with a $40 billion unsecured bridge loan arranged by JPMorgan, Goldman Sachs, and other big banks. Nvidia is running the same playbook: OpenAI winning means they continue to buy its hardware. All that money ends up in the same operating pool that pays out everything from salaries, compute, infrastructure buildout, model development, and yes, the 20% revenue share to Microsoft running through 2030.<\/p>\n To reiterate, OpenAI is not scheduled to be cash flow positive until 2030. Without Microsoft\u2019s revenue, OpenAI’s ability to write any check is more dependent than ever on continued access to outside capital, putting them in probably the most precarious position they\u2019ve ever been in.<\/p>\n Obviously, these companies are the biggest and most powerful in the world, but if, for any reason, they have to tighten their belts and OpenAI needs more money to IPO or \u201creach\u201d AGI, what exactly happens to their roadmap? Does it stall completely?<\/p>\nWHY IT MATTERS <\/h3>\n
WHAT\u2019S NEXT <\/h3>\n