Microsoft CFO says OpenAI investment will eat into profits this quarter

MicrosoftOpenAI's massive investment builds on revenue.

After Microsoft's quarterly earnings report on Wednesday, CFO Amy Hood said she expects the company to take a $1.5 billion revenue hit in the current period, mainly due to an expected loss from OpenAI.

Microsoft has invested nearly $14 billion in OpenAI, whose ChatGPT assistant has gone viral and inspired a whole new industry called generative artificial intelligence. This trend has generated billions of dollars in new revenue for Microsoft.

But OpenAI is losing bundles of cash. The company expects a loss of $5 billion this year, on revenue of $4 billion, before stock-based compensation, the data reported earlier this month, citing documents.

Hood said that for Microsoft, losses are accounted for under the equity method. The accounting method refers to a company's share of the invested company's profits or losses over a period of time, 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 create differentiated IP and accelerate revenue.”

The earnings call came after Microsoft reported an earnings and revenue beat for the first quarter of the fiscal year. However, the stock slipped into extended trading after company forecasts called for slower-than-expected growth.

While OpenAI is a central part of Microsoft's growth strategy, the company is hedging its bets after integrating OpenAI's models into several products and serving as the startup's exclusive cloud infrastructure provider. On Tuesday, Microsoft's GitHub subsidiary said it would allow developers to get the Copilot chat feature with models. Google Or startup Anthropic instead of OpenAI's GPT-4o.

In addition to investing $13 billion in Microsoft OpenAI as of September 30, the company invested another $750 million in a funding round announced in October, valuing OpenAI at $157 billion.

Microsoft's rivals are playing a similar game. the amazonMost notably, it invested $4 billion in AI model company Anthropic, whose founders previously worked on OpenAI. Amazon reported earnings on Thursday.

The OpenAI investment disclosure was new for Microsoft, but the company registered $2.3 billion in other spending over the past four quarters. That number factors in investments 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 in OpenAI.”

OpenAI did not immediately respond to a request for comment.

See: Oppenheimer downgrades Microsoft: OpenAI losses not properly priced