Microsoft's AI Business Booms, But Most Revenue Still Comes from Partner OpenAI
Microsoft's AI business has been on a tear, and its recent earnings report reflected that. The company's shares jumped after the report, and it appears that most of the growth in its AI unit is due to one partner: OpenAI.
A new filing from Microsoft shows that the company booked $24.1 billion in revenue from OpenAI during the year ending June, according to Bloomberg. This represents more than half of Microsoft's actual AI sales, and likely around 70%, although this figure is an estimate based on past data.
It's worth noting that much of the money is not what it seems. Under their agreement, OpenAI pays Microsoft for cloud computing and the cost of building models, as well as a share of its revenue. Much of the $24.1 billion is actually OpenAI's own compute bill, routed through Azure and booked as Microsoft income.
Despite this, some analysts are concerned that Microsoft may be too dependent on OpenAI. KeyBanc analyst Jackson Ader wants to know where the money comes from - is it services sold to OpenAI, or the benefit of Microsoft's own investment? The bears are blunter, arguing that much of Microsoft's AI revenue is actually just OpenAI's compute bill dressed up as growth.
Microsoft has been working to diversify its AI offerings, but so far it hasn't had much success. The company has built its own LLM models and offers cloud customers over 11,000 of them, but still a large majority of its AI revenue comes from OpenAI.