Microsoft CEO Satya Nadella (right) speaks as OpenAI CEO Sam Altman looks on during the OpenAI DevDay event on November 6, 2023 in San Francisco.
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MicrosoftThe massive investment in OpenAI is weighing on earnings.
After Microsoft's quarterly earnings report on Wednesday, CFO Amy Hood said she expects the company to suffer a $1.5 billion drop in earnings in the current period, primarily due to an expected loss from OpenAI.
Microsoft has invested nearly $14 billion in OpenAI, whose ChatGPT assistant went viral and inspired a whole new industry called generative artificial intelligence. The trend has brought billions of dollars in new revenue to Microsoft.
But OpenAI is losing a lot of money. The company expects losses of $5 billion (before stock-based compensation) this year on revenue of $4 billion, The Information reported earlier this month, citing documents.
Hood said the loss for Microsoft would be accounted for using the equity method. The accounting approach refers to a company's share of the profit or loss of the invested company in a given period, a Microsoft spokesman said.
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 announcement came after Microsoft reported an increase in profit and revenue for its fiscal first quarter. However, the stock fell in extended trading after the company's forecast predicted slower-than-expected growth.
While OpenAI is a central part of Microsoft's growth strategy, the company has hedged its bets by integrating OpenAI models into multiple products and serving as the startup's exclusive cloud infrastructure provider. On Tuesday, Microsoft's GitHub subsidiary announced that it would allow developers to power the Copilot chat feature using models from Google or Startup Anthropic instead of OpenAI's GPT-4o.
In addition to the $13 billion that Microsoft had invested in OpenAI as of September 30, the company invested an additional $750 million in a funding round announced in October, valuing OpenAI at $157 billion.
Microsoft's competitors are playing a similar game. AmazonNotably, it has invested $4 billion in AI modeling company Anthropic, whose founders previously worked at OpenAI. Amazon reports earnings on Thursday.
Disclosing OpenAI investments was new for Microsoft, but the company reported over $2.3 billion in other expenses over the last four quarters. This figure took into account the investment in OpenAI, the spokesman said.
On the earnings call, Microsoft CEO Satya Nadella said that the collaboration with OpenAI has benefited both parties and that the company is pleased with “our investment stake in OpenAI.”
OpenAI did not immediately respond to a request for comment.
REGARD: Oppenheimer downgrades Microsoft: OpenAI losses are not properly priced in
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