Microsoft Secures $250 Billion OpenAI Commitment, Strengthening Azure's AI Growth Trajectory

Microsoft's new OpenAI deal strengthens long-term Azure growth outlook By Investing.com

Investing.com -- UBS called Microsoft's revised agreement with OpenAI "a positive," saying the $250 billion commitment provides stronger visibility into future Azure cloud revenue and reaffirms Microsoft's central role in the generative AI ecosystem. The brokerage said the scale of Microsoft's commitment, likely spread over seven to eight years, or roughly $30 billion to $35 billion annually is well above expectations and should lift longer-term cloud growth forecasts. The deal also extends Microsoft's intellectual property and hosting rights for OpenAI models to 2032 while keeping API hosting exclusivity largely intact. UBS said the agreement removes a lingering overhang around the companies' partnership by clarifying commercial terms and ensuring Microsoft remains OpenAI's primary compute provider. The firm added that the arrangement could validate similar AI infrastructure exposure for rivals such as Oracle. Some terms fell short of expectations, including the retention of the "AGI clause," which could affect hosting rights if OpenAI declares artificial general intelligence. UBS downplayed the risk, noting both Microsoft and OpenAI leaders have questioned the practical meaning of the term. The final 27% equity stake was slightly below forecasts, while details on revenue sharing were not disclosed. UBS kept its $650 price target and positive view on the stock, saying the announcement bolsters confidence in Microsoft's AI roadmap and long-term Azure trajectory. The brokerage values Microsoft at 54 times projected 2027 free cash flow, a premium it said is justified by sustained cloud and AI growth potential.

UBS remains bullish on Microsoft, welcoming deal with OpenAI

On Wednesday, UBS renewed its buy recommendation and its 12-month price target of $650 for Microsoft shares, believing that the new agreement with OpenAI was good news for the American software giant. The broker highlights in a research note that not only was this partnership sealed earlier than expected, which in itself is already a favorable outcome, but that its terms are positive since the owner of ChatGPT has committed to buying some $250bn worth of capacity from Microsoft, even though the exact duration of the contract has not been disclosed. However, if it were to span seven or eight years, this would represent a budget of around $30bn to $35bn per year, several times the current level of OpenAI's spending at Microsoft, he notes. This means, in his view, that the Redmond-based group is assured of a high volume of business for Azure, making the growth of its cloud platform more predictable and robust. With regard to intellectual property, Microsoft has secured strong rights to OpenAI's models and intellectual property, strengthening its position in the field of AI, adds the broker, who believes that the clause relating to artificial general intelligence (AGI) does not really constitute a source of risk, as the heads of Microsoft and OpenAI themselves have stated that the term 'AGI' has become vague and unclear, and therefore of little practical significance. According to UBS, this agreement eliminates uncertainties surrounding the relationship between Microsoft and OpenAI and strengthens their long-term partnership, which is a positive factor given that Azure's current growth trends are already strong, leading it to remain positive on the stock.