OpenAI’s (OPENAI) announcement that it has raised $110B in new funding should alleviate the concerns about paying its bills and ultimately benefit Microsoft (MSFT) and Oracle (ORCL), BNP Paribas said.
“Broadly, the formal announcement of OpenAI’s $110B fundraise at a reported $730B pre-money valuation ($840B post-money) should be incrementally positive for Microsoft and Oracle, even if it’s been well telegraphed from media reports in recent months,” BNP analyst Stefan Slowinski wrote in a note to clients. “With fresh capital now secured, OpenAI appears well positioned to fund both its $250B compute contract with Microsoft and $300B compute contract with Oracle.”
Slowinski added that OpenAI’s updated cash burn forecasts imply roughly $180B in funding needs through 2030, which includes the $110B raised from Nvidia (NVDA), Amazon (AMZN), and SoftBank (SFTBY). “As a result, with additional non-strategic investors layering in alongside the initial $110B raise, OpenAI could ultimately be most of the way towards addressing its cumulative cash needs,” Slowinski explained.
He has a Buy rating on Microsoft and Oracle and respective price targets of $659 and $290.
Beyond the ability to pay its bills, OpenAI’s funding round has other implications for Microsoft and Oracle, Slowinski said.
For Microsoft, the analyst believes the Satya Nadella-led company will report a “significant gain” in the fiscal third-quarter as its stake in OpenAI is likely to be valued higher. Assuming Microsoft is diluted with this funding round, he believes Microsoft owns roughly $200B worth of OpenAI, or about 7% of Microsoft’s market cap. “Removing this from Microsoft’s valuation makes the current multiple that much more attractive,” he explained.
For Oracle, Slowinski said the debate now moves on to whether Oracle can actually execute its contracts. “While we would have initially assumed that closing the raise would be viewed positively for Oracle, we worry the debate will simply shift to the ROI of AI and whether Oracle’s capital investments will ultimately deliver an attractive return, especially as OpenAI appears to be increasingly diversifying its cloud compute stack,” the analyst explained.
Other questions may include whether OpenAI needs Oracle Cloud Infrastructure after Oracle delivers on its initial contract, given the increased commitment between OpenAI and Amazon Web Services, Slowinski said.