Microsoft Forecasts $1.5 Billion Loss from OpenAI Investment Amid AI Revenue Growth

Microsoft CFO says OpenAI investment will cut into profit this quarter

Following Microsoft's quarterly earnings report on Wednesday, CFO Amy Hood said she expects the company to take a $1.5 billion hit to income in the current period, mainly because of an expected loss from OpenAI. Microsoft has invested close to $14 billion in OpenAI, whose ChatGPT assistant has gone viral and inspired a whole new industry called generative artificial intelligence. The trend has generated billions of dollars in new revenue for Microsoft. But OpenAI is losing bundles of cash. The company expects $5 billion in losses this year, before stock-based compensation, on $4 billion in revenue, The Information reported earlier this month, citing documents. Hood said that for Microsoft, the loss is accounted for under the equity method. The accounting approach refers to a company's share of the invested company's profit or loss in a given period, a Microsoft spokesperson said. The additional detail is "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 an earnings and revenue beat for the fiscal first quarter. However, the stock slid in extended trading after the company's forecast called for slower-than-expected growth. While OpenAI is a central part of Microsoft's growth strategy, the company has been hedging its bets after integrating OpenAI's models into several 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 from Google or startup Anthropic instead of OpenAI's GPT-4o. In addition to the $13 billion Microsoft had invested in OpenAI as of Sept. 30, the company put in another $750 million in a funding round announced in October, which valued OpenAI at $157 billon. Microsoft rivals are playing a similar game. Amazon, most notably, has invested $4 billion in AI model company Anthropic, whose founders previously worked at OpenAI. Amazon reports earnings on Thursday. The OpenAI investment disclosure was new for Microsoft, but the company has registered over $2.3 billion in other expense in the past four quarters. That number has factored in the investment in OpenAI, the spokesperson said. On the earnings call, Microsoft CEO Satya Nadella said the collaboration with OpenAI has benefited both parties and that the company feels good about "our investment stake in OpenAI." OpenAI didn't immediately respond to a request for comment.

Microsoft's financial disclosures show how OpenAI is fueling growth -- and taking a toll on profits

Microsoft disclosed the size of its OpenAI investment for the first time, acknowledging in its quarterly regulatory filing Wednesday afternoon that it has made "total funding commitments of $13 billion" to the ChatGPT maker. That footnote in the company's financial statements confirmed widespread reports about the magnitude of its investment. Because it came in a filing for the quarter ended Sept. 30, it doesn't include the additional $750 million that Microsoft reportedly invested in OpenAI's latest funding round at the beginning of October. But the juicier tidbit came in another footnote: Microsoft acknowledged that losses from its stake in OpenAI were part of the reason that it recorded a $683 million expense related to its equity investments in the quarter. And on the company's earnings conference call with analysts, Amy Hood, Microsoft's chief financial officer, made it clear that this expense will be increasing significantly in the next quarter, due largely to OpenAI. "Other income and expense is expected to be roughly negative $1.5 billion, primarily driven by our share of the expected loss from OpenAI, which is accounted for under the equity method," Hood explained, referencing a type of accounting used to record one company's share of another company's profits or losses. It's important to note that OpenAI doesn't represent the entirety of that line item in Microsoft's financial statements. However, it's clear that OpenAI is a big part of it, and its losses are starting to weigh meaningfully on Microsoft's bottom line -- to the point where it made sense for the company to start disclosing the numbers to investors. To put the numbers in context, Microsoft reported profits of about $25 billion in its latest quarter. At the same time, Hood sought to make clear that Microsoft's overall AI investment is paying off, noting that the company's AI business is on pace to exceed a $10 billion annual revenue run rate in the second quarter. "This will be the fastest business in our history to reach this milestone," Hood said on the conference call. "We are committed to growing this leadership position across our entire Microsoft Cloud while maintaining our disciplined focus on cost management and prioritization across every team." Responding to an inquiry from GeekWire, a Microsoft spokesperson confirmed that the company was previously including the impact of the OpenAI investment in the "other income and expense" line item, and decided to start disclosing it explicitly to help investors understand the impact. The spokesperson noted that the additional disclosures do not indicate any change in the company's OpenAI partnership or relationship. Overall, OpenAI expects to lose about $5 billion this year, the New York Times reported Sept. 27, citing financial documents reviewed by the newspaper in conjunction with the startup's latest funding round. The new disclosures by Microsoft about OpenAI follow reports of tensions between the companies, and signs that Microsoft is hedging its bets -- partnering, for example, with Anthropic and Google to provide alternatives to ChatGPT for developers using Microsoft's popular GitHub Copilot coding companion. The growing size of the financial hit from the OpenAI investment helps to explain why Microsoft CEO Satya Nadella took the time to put the OpenAI relationship in perspective on the earnings call on Wednesday. "Our partnership with OpenAI also continues to deliver results," Nadella said in his prepared remarks. "We have an economic interest in a company that has grown significantly in value." He said usage of Microsoft's Azure OpenAI service has doubled in the last six months. Microsoft said in its earnings report that AI services contributed 12 percentage points to a 33% increase in Azure cloud revenue in the quarter. Later in the call, Nadella went into greater detail in response to an analyst's question. "The partnership for both sides -- that's OpenAI and Microsoft -- has been super beneficial," he said, adding that Microsoft "effectively sponsored" what became one of the "highest-valued private companies today when we invested in them, and really took a bet on them and their innovation, four or five years ago." That, in turn, "has led to great success" for both companies, which Microsoft and OpenAI continue to build upon, Nadella said. He cited Microsoft providing OpenAI with the infrastructure needed for their innovations, and Microsoft's ability to leverage the resulting AI models from OpenAI, in addition to those that it trains and runs itself. "We feel very, very good about our investment stake in OpenAI, and our own our focus," he said. "We're always in constant dialogue with them. In a partnership like this, when both sides have achieved mutual success at the pace at which we've achieved it, that means we need to push each other to do more to capture the moment, and that's what we plan to do -- and we intend to keep building on it."

Microsoft Expects $1.5 Billion Loss from OpenAI

During Microsoft's Q1 2025 earnings call, CFO Amy Hood disclosed an anticipated $1.5 billion loss under "other income and expense" for the coming quarters, driven largely by the company's stake in OpenAI. This forecasted loss stems from Microsoft's share of OpenAI's expected performance, accounted for under the equity method. "We do not recognize mark-to-market gains or losses on equity method investments," Hood said, clarifying the nature of the expected loss. Meanwhile, Microsoft CEO Satya Nadella said that the partnership is 'beneficial' for both Microsoft and OpenAI. "We effectively sponsored what is one of the most highest-valued private companies today when we invested in them and really took a bet on them and their innovation 4, 5 years ago," said Nadella. He added that this quarter, the company integrated support for OpenAI's newest model family, o1. "Microsoft is also introducing industry-specific models through Azure AI, including a suite of top-tier multimodal models for medical imaging," he said. He further said that OpenAI continues to deliver results for Microsoft. "We have an economic interest in a company that has grown significantly in value, and we have built differentiated IP and are driving revenue momentum," he said. Nadella also highlighted Azure AI's expanding AI infrastructure, including the Maia 100 accelerator and NVIDIA's Blackwell-powered systems, making Microsoft the first cloud provider to support this advanced setup. OpenAI recently raised $6.6 billion at a valuation of $157 billion. This time, however, the startup is not solely dependent on Microsoft, as the funding was led by Thrive Capital. Other significant participants in the funding round included NVIDIA, SoftBank, Khosla Ventures, Altimeter Capital, Fidelity, and MGX. Despite projected 2024 revenues of $3.7 billion, OpenAI anticipates a $5 billion loss due to substantial hardware, electricity, and cloud service expenses. The company's forecasts indicate it won't achieve profitability until 2029, with projected revenue reaching $100 billion. However, losses could escalate to $14 billion in 2026, nearly three times this year's anticipated losses, according to a recent report. Moreover, OpenAI anticipates a steep rise in computing costs for model training over the coming years, with expenses potentially reaching $9.5 billion annually by 2026. Microsoft's partnership with OpenAI began in 2019 with an initial investment of $1 billion. In the Netflix series What's Next? Microsoft founder Bill Gates revealed that he initially thought his next big focus would be eradicating malaria, and not AI. However, when Greg Brockman gave him a demo of GPT-4, it completely 'blew his mind', changing his perspective on AI.