Microsoft faces AI uncertainty as OpenAI looks to other cloud providers

Microsoft’s close partnership with OpenAI has been a major factor in its recent growth. Exclusive access to OpenAI’s models has boosted Azure’s performance and helped lift Microsoft’s market value to nearly $4 trillion. For the April-June quarter, Azure revenue is expected to rise 34.8%, matching Microsoft’s own forecast and slightly ahead of the previous quarter’s 33% growth, according to Visible Alpha data.

But that partnership is now being renegotiated. OpenAI is looking to go public, and a shift to a public-benefit corporation would require Microsoft’s approval. Reports suggest there’s been a standoff over how much access Microsoft would retain to OpenAI’s technology and what its equity stake would look like after the change.

The restructuring is tied to OpenAI’s $40 billion funding round, led by Japan’s SoftBank. Half of that funding depends on the legal change being completed before the end of the year. Without Microsoft’s sign-off, the deal can’t move forward.

Meanwhile, OpenAI has been broadening its cloud partnerships. The company recently expanded its work with Oracle, which includes plans for 4.5 gigawatts of data centre capacity, and has also begun using Google Cloud for additional compute power.

Analysts at UBS say investor opinion is mixed on what all this means for Microsoft, though the company still has use in talks. “Microsoft’s leadership earned enough credibility … such that the company will end up negotiating terms that will be in the interest of its shareholders,” analysts wrote. The market seems to share that view. Microsoft’s stock has climbed more than 20% so far this year.

Beyond its AI interests, the company is expected to report strong overall numbers for the quarter. Analysts project a 14% revenue jump to $73.81 billion – its best growth in three quarters – helped by a weaker US dollar, rising non-AI demand for Azure, and PC makers accelerating Windows orders ahead of possible tariffs.

Profit is expected to increase 14.2% to $25.16 billion. That’s a bit slower than the prior quarter, partly due to rising operating expenses.

Investors will also be watching Microsoft’s capital spending plans. Last week, Alphabet raised its annual spending target by $10 billion. Microsoft has said it’s still facing supply limits on AI capacity and signalled more infrastructure investment, though at a slower pace and focused more on short-term assets like AI chips. In the last fiscal year, the company planned more than $80 billion in capital spending.

Dan Morgan, a senior portfolio manager at Synovus Trust and Microsoft shareholder, said the investment is working. “Investors may still be underestimating the potential for Microsoft’s AI business to drive durable consumption growth in the agentic AI era.”

Ongoing talks to extend access to OpenAI’s tech

Microsoft is now in advanced talks with OpenAI to update their deal, according to Bloomberg News, which cited two people familiar with the matter. The goal is to make sure Microsoft keeps access to OpenAI’s latest models even if the startup declares it has reached artificial general intelligence – a point at which some rights in the current agreement would no longer apply.

Negotiators have been meeting regularly and could finalise new terms in the coming weeks. Neither company has responded to requests for comment.

The two sides have been trying to revise their agreement for months, including Microsoft’s future equity stake in OpenAI. Last month, The Information reported that they were at odds over the AGI clause in their current deal.

At the same time, OpenAI is also facing pressure from outside. Elon Musk, who co-founded the company in 2015 but later left, is now suing OpenAI for allegedly straying from its original mission – to build AI for the benefit of humanity, not private profit.

As Microsoft reports earnings, its relationship with OpenAI – and OpenAI’s growing work with rival cloud providers – will be closely watched.

(Photo by Ed Hardie)

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