Saturday, November 2, 2024

Microsoft CFO says OpenAI investment will cut into profit this quarter

Microsoft CEO Satya Nadella, proper, speaks as OpenAI CEO Sam Altman appears on through the OpenAI DevDay occasion in San Francisco on Nov. 6, 2023.

Justin Sullivan | Getty Images

Microsoft‘s huge investment in OpenAI is weighing on earnings.

Following Microsoft’s quarterly earnings report on Wednesday, CFO Amy Hood mentioned she expects the corporate to take a $1.5 billion hit to earnings within the present interval, primarily due to an anticipated loss from OpenAI.

Microsoft has invested near $14 billion in OpenAI, whose ChatGPT assistant has gone viral and impressed an entire new trade referred to as generative synthetic intelligence. The pattern has generated billions of {dollars} in new income for Microsoft.

But OpenAI is dropping bundles of money. The firm expects $5 billion in losses this yr, earlier than stock-based compensation, on $4 billion in income, The Information reported earlier this month, citing paperwork.

Hood mentioned that for Microsoft, the loss is accounted for underneath the fairness technique. The accounting method refers to an organization’s share of the invested firm’s profit or loss in a given interval, a Microsoft spokesperson mentioned.

The further element is “not due to a change in our partnership or investment in OpenAI,” the spokesperson mentioned in an electronic mail. “Our partnership with OpenAI continues to deliver results, as we build differentiated IP and drive revenue momentum.”

The earnings name got here after Microsoft reported an earnings and income beat for the fiscal first quarter. However, the inventory slid in prolonged buying and selling after the corporate’s forecast referred to as for slower-than-expected progress.

While OpenAI is a central a part of Microsoft’s progress technique, the corporate has been hedging its bets after integrating OpenAI’s fashions into a number of merchandise and performing because the startup’s unique cloud infrastructure supplier. On Tuesday, Microsoft’s GitHub subsidiary mentioned it will permit builders to energy the Copilot Chat characteristic with fashions from Google or startup Anthropic as an alternative of OpenAI’s GPT-4o.

In addition to the $13 billion Microsoft had invested in OpenAI as of Sept. 30, the corporate put in one other $750 million in a funding spherical introduced in October, which valued OpenAI at $157 billion.

Microsoft rivals are enjoying an analogous recreation. Amazon, most notably, has invested $4 billion in AI mannequin firm Anthropic, whose founders beforehand labored at OpenAI. Amazon studies earnings on Thursday.

The OpenAI investment disclosure was new for Microsoft, however the firm has registered over $2.3 billion in different expense prior to now 4 quarters. That quantity has factored within the investment in OpenAI, the spokesperson mentioned.

On the earnings name, Microsoft CEO Satya Nadella mentioned the collaboration with OpenAI has benefited each events and that the corporate feels good about “our investment stake in OpenAI.”

OpenAI did not instantly reply to a request for remark.

WATCH: Oppenheimer downgrades Microsoft: OpenAI losses will not be correctly priced in

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