(Bloomberg) -- Microsoft Corp. shares fell as much as 2% after the company abruptly amended its multi-billion dollar partnership with OpenAI, eliminating its revenue-sharing agreement and signaling a major shift in the companies' strategic alignment. The move raises new questions about the long-term financial structure of the industry's most-watched partnership.
"This closes the inference cost gap," CEO Andy Jassy said.
Under the new terms announced April 27, Microsoft will no longer pay a revenue share to OpenAI, and its license to the startup's intellectual property will become non-exclusive through 2032. OpenAI's models, which power Microsoft's Copilot and numerous Azure AI services, will still launch first on Microsoft's cloud, but OpenAI is now free to serve its products to customers on any cloud provider. The change provides "flexibility, certainty, and a focus on delivering the benefits of AI broadly," OpenAI said in a statement.
The market reaction highlights investor anxiety over Microsoft's massive capital expenditures on AI, which are projected to be between $80 billion and $146 billion for fiscal 2026. While Microsoft remains a major shareholder in OpenAI, the end of the revenue-sharing deal, coupled with a non-exclusive license, introduces new competitive risks. Bulls, like Wedbush analyst Dan Ives, see the recent stock pullback as a "generational buying opportunity," reiterating an outperform rating with a $625 target. Ives argues that Wall Street is underestimating the growth of Microsoft's Azure cloud and that AI monetization will significantly boost profits in 2026-2027.
However, the bear case centers on the spiraling costs of AI and Microsoft's stumbles in monetizing its flagship Copilot product. Analysts estimate last year’s M365 Copilot revenue was between $1.4 billion and $3.2 billion, a fraction of the $30 billion some had initially projected. With OpenAI now able to partner with other cloud giants like Google and Amazon, Microsoft's path to recouping its massive AI investment becomes less certain. The amended agreement, while providing near-term cost relief by ending revenue-share payments, could expose Microsoft to greater long-term competition for the AI workloads that are supposed to justify its infrastructure spending.
This article is for informational purposes only and does not constitute investment advice.
