Microsoft’s (NASDAQ:MSFT) altered deal with OpenAI (OPENAI) — which gives Microsoft a $135B stake in the ChatGPT maker — paves the way for “more AI acceleration,” investment firm BNP Paribas said on Tuesday.
“For Microsoft, we believe today’s announcement removes a long-standing overhang as investors now have greater clarity into the future of the OpenAI / Microsoft partnership and allows investors to now properly embed Microsoft’s OpenAI stake into the company’s valuation (rather than OpenAI losses simply being a drag on EPS growth),” BNP Paribas Equity Research senior analyst Stefan Slowinski wrote in a note to clients.
Slowinksi explained that the new commitment from OpenAI to spend $250B on Azure should also help “assuage concerns” that Microsoft is foregoing hundreds of billions in potential revenue.
“With Microsoft also having access to some OpenAI research IP, this should accelerate the company’s frontier model development, likely driving capex higher as the company looks to support its internal AI efforts and the new OpenAI commitment,” Slowinksi added.
The deal also has implications for other tech companies, including Oracle (NYSE:ORCL), Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), Slowinksi said.
For Oracle, the renegotiation of the deal could lessen investor concerns about OpenAI’s ability to finance its compute commitments, given that the public benefit conversion now unlocks the second part of SoftBank’s (OTCPK:SFTBY) funding.
“More importantly, OpenAI’s [public benefit conversion] conversion better positions the company to raise additional capital either as a for-profit private entity or through an eventual IPO,” Slowinksi posited, adding that OpenAI could also make commitments to Oracle.
For Amazon, the deal could be a positive for Amazon Web Services, even if OpenAI’s GPT API remains exclusive to Microsoft Azure.
“Notably, Amazon remains the only major hyperscaler without a cloud commitment from OpenAI (Microsoft, Alphabet, Oracle, and Coreweave all support OpenAI workloads), and we believe the removal of Microsoft’s [right of first refusal] frees OpenAI to engage with AWS on a potential future cloud commitment,” Slowinksi said. “With OpenAI looking to scale its revenues to $200bn by 2030 (with access to compute being the biggest limiting factor in the eyes of OpenAI management), we now believe an OpenAI / AWS deal is highly likely as AWS remains the only untapped source of large-scale high-performance compute for the company.”
Slowinksi also suggested the deal could cause Anthropic (ANTHRO) to spend more on Amazon Web Services as it looks to scale even further.
Conversely, the deal is likely a negative for Alphabet, Slowinksi said. “On one hand, the elimination of the [right of first refusal] might allow OpenAI to work more closely with Google Cloud, especially for access to Google TPUs (similar to what we’ve recently seen with Anthropic / Alphabet). However, with OpenAI now able to tap into both the private and public capital markets to fuel its growth, we could see the company expand more aggressively into new revenue streams, particularly in advertising. In turn, we could see OpenAI eventually capturing greater share of commercial Search queries, reintroducing concerns around AI Search competition.”