OpenAI, the parent company of ChatGPT, and Microsoft (NASDAQ: MSFT) recently announced that they have revised their partnership, dictating how the two conduct business with one another.
Since 2019, Microsoft has invested over $13 billion in OpenAI, and the two have had a special partnership that includes Microsoft serving as OpenAI’s main cloud partner, with exclusive access to OpenAI’s models and products, and a revenue-sharing arrangement between the two companies.
While Microsoft and OpenAI will continue to have a strong partnership, many provisions of the original agreement are changing. Will this impact Microsoft’s artificial intelligence moat?
OpenAI and Microsoft have long had a partnership regarding how the two entities do business with one another.
OpenAI, the parent company of ChatGPT, and Microsoft (MSFT 0.05%) recently announced that they have revised their partnership, dictating how the two conduct business with one another.
Since 2019, Microsoft has invested over $13 billion in OpenAI, and the two have had a special partnership that includes Microsoft serving as OpenAI’s main cloud partner, with exclusive access to OpenAI’s models and products, and a revenue-sharing arrangement between the two companies.
While Microsoft and OpenAI will continue to have a strong partnership, many provisions of the original agreement are changing. Will this impact Microsoft’s artificial intelligence moat?
Image source: Getty Images.
Significant changes to the agreement
OpenAI and Microsoft have changed their partnership in several key areas.
While Microsoft will continue to be OpenAI’s primary cloud partner, with the right of first refusal and products coming to Azure first, OpenAI can now place its products and services on any cloud provider, including Microsoft competitors like Google and Amazon.
Microsoft will keep its license to use OpenAI’s large language models (LLMs) and products through 2032, but the license will no longer be exclusive, again making OpenAI’s products and services more available to Microsoft’s competitors.
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Revenue sharing payments from OpenAI to Microsoft will continue through 2030, but Microsoft will no longer pay a revenue share to OpenAI. In the agreement, Microsoft did reiterate its commitment to OpenAI as a major shareholder.
How does this impact Microsoft’s AI moat?
Wall Street analysts from Barclays and Evercore ISI brushed off the revised agreement. Barclays analyst Raimo Lenschow called it positive because OpenAI had been moving toward independence, and this now sets a clear framework, while giving Microsoft revenue from OpenAI until 2030.
Evercore ISI analyst Kirk Materne said OpenAI has “clear incentives to expand distribution more broadly across the market.”
On the flip side, the new deal removes Microsoft as the exclusive provider of OpenAI’s models and products, making them more ubiquitous to any cloud provider.
Furthermore, OpenAI had been driving a lot of the backlog for Microsoft Azure cloud services, a business that has experienced annual revenue growth of 30% to 40% in every quarter over the past year.
In fact, earlier this year, Microsoft said remaining performance obligations (RPOs), which is revenue that has been contracted but not realized yet, grew 110% year over year to $625 billion, 45% of which is being driven by OpenAI commitments.
In his research note, Materne said, “understanding how the new one directional revenue share structure impacts Azure economics is likely to be an important question on Wednesday’s call” when Microsoft reports its 2026 fiscal third-quarter earnings.
Ultimately, it is too early to understand how exactly this deal will impact Microsoft. On one hand, it seems that, in the long term, it will erode some of Microsoft’s advantages, such as exclusive access to OpenAI’s models.
On the other hand, it seems like a better strategy for OpenAI’s success, which would still benefit Microsoft, given its large stake in the company. I still view Microsoft as a buy, given the sell-off this year, the high-quality, sticky nature of its tech and enterprise products, and its ability to benefit from AI as well.
