Nandini Roy Choudhury, writer
Brief news
- Microsoft anticipates a $1.5 billion profit loss due to its significant investment in OpenAI, which has reached approximately $14 billion.
- OpenAI is projected to incur $5 billion in losses this year, despite generating $4 billion in revenue.
- Microsoft remains committed to its partnership with OpenAI, integrating its technology into products while exploring alternatives from competitors.
Detailed news
Microsoft’s enormous investment in OpenAI is having a negative impact on the company’s profitability.
CFO Amy Hood stated that she anticipates the firm to take a $1.5 billion damage to profits in the current period, mostly due to an expected loss from OpenAI. This statement was made in response to Microsoft’s quarterly earnings report, which was distributed on Wednesday.
Microsoft has made an investment of approximately to $14 billion in OpenAI, the company whose ChatGPT assistant has become extremely popular and contributed to the development of a whole new sector known as generative artificial intelligence. Microsoft has generated billions of dollars in new revenue as a result of the trend.
However, OpenAI is incurring substantial losses. The Information reported earlier this month that the company anticipates $5 billion in losses this year, prior to stock-based compensation, on $4 billion in revenue. This information was based on documents.
According to Hood, the equity approach is the one that is used to provide an accounting for the loss for Microsoft. A spokeswoman for Microsoft stated that the accounting technique refers to the proportion of a firm’s profit or loss that is attributed to the company in which it has invested during a specific time period.
The spokesperson stated in an email that the supplementary information is not a result of a change in our partnership or investment in OpenAI. “We continue to achieve results through our partnership with OpenAI, as we develop unique intellectual property and accelerate revenue growth.”
Microsoft’s fiscal first quarter earnings and revenue exceeded expectations, prompting the earnings call. However, the stock experienced a decline in extended trading following the company’s forecast, which indicated that development would be slower than anticipated.
After incorporating OpenAI’s models into numerous products and serving as the startup’s exclusive cloud infrastructure provider, Microsoft has been hedging its wagers, despite the fact that OpenAI is a critical component of its growth strategy. On Tuesday, Microsoft’s GitHub subsidiary announced that developers would be able to utilize models from Google or startup Anthropic to enable the Copilot Chat feature, rather than OpenAI’s GPT-4o.
Microsoft contributed an additional $750 million to OpenAI’s funding round in October, which valued the company at $157 billion, in addition to the $13 billion it had invested in the company as of Sept. 30.
The competitors of Microsoft are engaging in a comparable strategy. Amazon has made a significant investment of $4 billion in Anthropic, an AI model company whose founders were previously employed at OpenAI. Earnings are disclosed by Amazon on Thursday.
The OpenAI investment disclosure was a novel development for Microsoft; however, the company has recorded more than $2.3 billion in other expenses over the past four quarters. The spokesperson stated that the investment in OpenAI has been taken into account when calculating that figure.
Microsoft CEO Satya Nadella stated during the results call that the business is pleased with “our investment stake in OpenAI” and that the work with OpenAI has been beneficial to both parties involved.
In response to a request for comment, OpenAI did not immediately provide a response.
Source : CNBC News
