Microsoft has warned that its $14 billion investment in OpenAI could leave a significant hole in its finances.
Shares in Microsoft dropped by almost 4% as it released earnings results, which announced cloud growth "strength", which nonetheless left investors disappointed.
During Q1 2025, which ended on September 30, Microsoft's revenue rose 16% to $65.6 billion. Operating income was up 14% to $30.6 billion and net income increased 11% to $24.7 billion.
“Strong execution by our sales teams and partners delivered a solid start to our fiscal year with Microsoft Cloud revenue of $38.9 billion, up 22% year-over-year,” said Amy Hood, executive vice president and chief financial officer of Microsoft, in a statement.
Earlier this year, Microsoft ploughed $13 billion into OpenAI - avoiding an EU competition probe because the investment didn't count as a proper merger. It then invested a further $750 million during a funding round.
Despite OpenAI boss Sam Altman's claims that AGI (AI that matches or beats human intellect) is just five years away, the road ahead may be bumpy. It has been claimed that the company expects it will not turn a profit until 2029 - when revenues will hit $100 billion.
On an earnings call, Amy Hood said that "other income and expense", an accounting term used on financial statements to capture costs that don’t fit into a company’s main business operations, is expected to "be roughly negative $1.5 billion".
Despite the potential financial hit, Satya Nadella said the partnership has been "super beneficial" for both sides.
"After all, 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 four or five years ago," he added. "And that has led to great success for Microsoft. That’s led to great success for OpenAI. And we continue to build on it."
Nadella said Microsoft is committed to serving OpenAI with "world-class infrastructure" to run its models, revealing that his own "conviction of OpenAI and what they were doing" began when he saw copilots from GitHub or M365 being built.
"We feel very, very good about our investment stake in OpenAI," the CEO added. "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's AI business is "on track" to hit revenue of $10 billion next quarter, making it the "fastest business in our history to reach this milestone", Nadella continued, before revealing that the company says a big firm nope to customers looking to rent GPUs.
"One of the things that may not be as evident is that we are not actually selling raw GPUs for other people to train," he continued. "In fact, that’s a business we turn away."
Nadella added: "We really are not even participating in most of that, because we are literally going to the real demand, which is in the enterprise space, or our own products like GitHub Copilot or M365. I feel the quality of our revenue is also pretty superior in that context."
