- Microsoft and OpenAI are struggling to come to terms for a new contract
- AI is contributing an increasing amount to cloud revenue
- But it's not clear that Microsoft would suffer much without OpenAI, analysts said
The state of Microsoft and OpenAI’s relationship isn’t looking so hot. The pair are reportedly engaged in tense negotiations about the future of their relationship as OpenAI seeks to move from a non-profit to a commercial entity, with multiple sources indicating the pair are fed up with each other. But what exactly would a very public breakup mean for the hyperscaler as it competes with Amazon and Google for cloud and AI dominance?
First things first. Under the terms of the pair’s current contract, Microsoft has commercial access to OpenAI’s tech through 2030. As Wired noted, this excludes any artificial general intelligence (AGI) tech that OpenAI might develop in the future.
In a note to investors earlier this month, New Street Research concluded that “AI represents 12% of cloud revenues, and as much as 1/3rd of cloud growth.” It predicted that cloud revenue for the big three hyperscalers (Amazon, Google and Microsoft) could reach $700 billion by 2030, with AI-related revenue accounting for nearly half of that number.
Given that context, what would it mean if one of the major cloud players parted ways with a key AI partner? Could such a move stunt revenue growth?
Crystal ball
Jack Gold, founder of J. Gold Associates, told Fierce he’s not sure that a breakup with OpenAI “would be all that damaging” to Microsoft. That’s in part because Microsoft has a whole library of AI models for customers to choose from. Plus, it’s not clear that the deal with OpenAI is everything Microsoft hoped it would be.
“The original thought for the relationship was for [Microsoft] to get a leg up on other hyperscalers by having a preferred partnership with OpenAI. But I’m not sure it’s paid off for them all that well,” he said.
Moor Insights and Strategy VP Matt Kimball made a similar observation.
"A lot of models have emerged – or come to the forefront – to challenge OpenAI. And Microsoft has built out a lot of tools around AI to help enterprise developers," Kimball told Fierce. "Let’s not forget, Azure also hosts other foundational models such as Mistral, Grok, Llama and others. In fact, Azure AI Foundry Models is kind of a one stop shop for customers to figure out what model is right for them."
There’s also an open question as to whether OpenAI will remain dominant in the rapidly evolving AI market. Gold pointed out that the sands have quickly shifted away from large language models (LLMs) to a focus on agentic AI.
“I think ultimately things like Google Deep Mind and Gemini are more of a threat to [Microsoft] dominance than a breakup with OpenAI. And with AWS putting a lot of effort into AI capability, as well as Meta, Oracle, IBM etc., the market is moving on from what was once a major OpenAI advantage,” Gold explained.
So, competition from the aforementioned companies as well as Anthropic, Mistral, DeepSeek, and in-app agent offerings (like Salesforce’s AgentForce) is not just knocking, but pounding, on OpenAI’s door.
That brings us back to the AGI tech mentioned above. As we’ve explained before, AGI in a nutshell is super-powerful AI that can perform better than humans at almost any cognitive task.
OpenAI could well be hoping that this will serve as its trump card in the market, but it’s not clear when it will become a reality. OpenAI CEO Sam Altman has said that he believes AGI will likely be developed before the end of President Donald Trump’s current term, which ends in January 2029. But a source told Wired Microsoft is skeptical that will happen.
Overall, Kimball said that while a split might be dramatic, both companies are likely to land on their feet.
"GPT is very popular and I have no doubt that the company would find many partners if or when its partnership with Azure ran its course," he concluded. "So, while it would be shocking to see the partnership dissolve, I don’t believe either company would be lost and trying to find their way in AI market."