With its early deal with OpenAI, Microsoft was leading the AI race in 2023. A year later, it froze its expansion. Now, Oracle serves OpenAI models while competitors benefit from what Nadella’s company has rejected.
Why This Matters
The financial implications are enormous. Microsoft assigned contracts with OpenAI valued at $420 billion to Oracle, translating to a projected gross profit of $150 billion over five years. This could have boosted Microsoft’s annual profitability by 18%. In essence, Microsoft hasn’t just lost growth; it has inadvertently provided its competitors a foothold into one of the most lucrative sectors of this decade, according to analysis by Semianalysis.
Microsoft’s Rapid Rise and Sudden Halt
The facts are striking. In 2023, Microsoft dramatically increased its investment in OpenAI, raising it tenfold to $10 billion and initiating the construction of the largest data centers ever built. This represented more than 60% of all cloud infrastructure leases among major players.
However, in 2024, Microsoft hit the brakes. It canceled 3.5 gigawatts of planned capacity—sufficient to power 2.5 million homes—and halted projects in numerous countries. Consequently, its share of contracts fell below 25%.
Behind the Decisions
Microsoft’s leaders touted financial prudence, arguing that they didn’t want OpenAI to account for half of Azure’s revenue with lower margins than the traditional business. Yet, the reality is simpler: their pacing couldn’t keep up.
OpenAI demanded a speed that Microsoft simply couldn’t match.
Re-entering the Market
After its abrupt cessation, Microsoft rushed back to the market, but many options had already run dry. The company now rents capacity from neoclouds, specialized firms that build infrastructure to resell it to third parties—a venture characterized by thinner margins.
The company that hesitated to build itself is now incurring costs for miscalculations.
Oracle and Friends: The New Winners
Oracle isn’t the only beneficiary of Microsoft’s misstep. Other firms like CoreWeave, Google, Amazon, Nscale, and SB Energy have inked significant contracts with OpenAI. By 2025, the narrative of OpenAI has morphed into a tale of diversification away from Microsoft, resulting in what initially seemed a rocky separation evolving into a managed distribution of assets.
The world’s leading AI lab had to distribute its infrastructure across multiple vendors because its original partner couldn’t—or wouldn’t—scale.
Challenges Ahead for Microsoft
Microsoft’s historical dominance, particularly with GitHub Copilot, is also eroding. New startups have developed more integrated code editors, leaving Copilot in the dust. Furthermore, Microsoft has been forced to integrate the models of its rival, Anthropic, into GitHub Copilot—a move that incurs heavy costs.
Once the exclusive holder of OpenAI’s capabilities, Microsoft now finds itself reliant on its rival to keep its code editor relevant.
Looking to the Future
Microsoft’s agreement with OpenAI doesn’t expire until 2032, providing it a valuable window to regroup.
- It boasts Copilot with 100 million users.
- It has Office 365, Azure, and a robust business ecosystem that stands unmatched.
- However, the “great pause” of 2024 will take years to rectify.
The company believes that the future of AI lies within enterprises—prioritizing security and localization rather than centralized megacenters. They might be right, but the 18-month technological advantage now enjoyed by rivals is worth billions, a fortune Microsoft just chose to relinquish.
In Xataka, concerns are raised about OpenAI’s impending debts, amounting to $400 billion in 2026. How they plan to navigate this financial landscape remains uncertain.