Microsoft reported a $7.6bn increase in net income linked to its investment in OpenAI, underscoring how the AI lab’s rapid revenue growth is translating into significant financial gains for one of its largest backers.
OpenAI Investment Boosts Net Income
Microsoft disclosed the gain during its quarterly earnings call on Wednesday, highlighting the contribution from its relationship with OpenAI. Microsoft has invested more than $13bn in OpenAI, which Bloomberg reported is seeking to raise additional funding at a valuation between $750bn and $830bn.
OpenAI is widely reported to have a revenue sharing arrangement that allocates about 20% of its revenue to Microsoft, though neither company has publicly confirmed the terms.
Revised Deal And Azure Commitments
In September, Microsoft and OpenAI renegotiated parts of their partnership after OpenAI restructured into a public benefit corporation. As part of that revised deal, OpenAI committed to purchasing an additional $250bn in Azure services.
That obligation is reflected in Microsoft’s “commercial remaining performance obligations,” a measure of contracted revenue not yet recognised. Those obligations rose to $625bn in the latest quarter, up from $392bn previously. Microsoft said about 45% of that total is tied to OpenAI.
Anthropic Adds To Future Revenue Outlook
Microsoft also cited Anthropic as a contributor to expected future revenue growth. Commercial bookings grew 230% year on year, supported in part by Anthropic’s commitments.
In November, Microsoft said it would invest $5bn in Anthropic. The company also agreed to purchase $30bn in Azure compute capacity, with plans to buy more over time.
Heavy Capital Spending On AI Infrastructure
Alongside rising revenue, Microsoft continues to spend heavily on infrastructure to support AI workloads. The company reported $37.5bn in capital expenditures for the quarter, with roughly two thirds allocated to short lived assets.
These included graphics processing units and central processing units used in Microsoft’s Azure cloud to run AI services.
Overall Financial Performance
Microsoft posted quarterly revenue of $81.3bn, beating Wall Street expectations of $80.27bn and representing a 17% increase from the same period a year earlier. Microsoft Cloud revenue reached $50bn for the first time in a single quarter.
Most business units reported double digit growth compared with the prior year. Windows devices revenue rose 1%, while Xbox content and services declined 5%.
Featured image credits: Octaware
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