Microsoft discloses equity investment in OpenAI for the first time, SEC filing shows
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- Microsoft disclosed equity investment in OpenAI for the first time, SEC filings show.
- Microsoft previously disclosed its relationship with OpenAI as a "partnership."
- Microsoft and OpenAI's relationship has evolved in recent months.
Microsoft disclosed an equity investment in OpenAI for the first time, according to its latest SEC filings.
On Wednesday, the company released its quarterly results. In legally required disclosures, Microsoft included information about its relationship with OpenAI.
"We have an investment in OpenAI Global, LLC ("OpenAI") and have made total funding commitments of $13 billion," Microsoft wrote in the SEC filing on Wednesday. "The investment is accounted for under the equity method of accounting."
In previous SEC filings, Microsoft described the nature of its relationship with OpenAI as a partnership rather than an equity investment.
"We have a long-term partnership with OpenAI, a leading AI research and deployment company," Microsoft wrote in its annual SEC filing from late July. "We deploy OpenAI's models across our consumer and enterprise products. As OpenAI's exclusive cloud provider, Azure powers all of OpenAI's workloads. We have also increased our investments in the development and deployment of specialized supercomputing systems to accelerate OpenAI's research."
"Soft money"
Accounting expert Francine McKenna told Business Insider that the new disclosure suggests that all or part of Microsoft's previous investments in OpenAI were "soft money," such as discounts or credits for services and internal spending that fell below a certain threshold where the software giant didn't need to publicly disclose details.
A Microsoft spokesperson said on Wednesday that its partnership with and investments in OpenAI have not changed.
In early October, OpenAI completed a $6.6 billion funding round and Microsoft took part in that deal. OpenAI also began a process of changing from a mostly non-profit organization to a more traditional for-profit business.
Crossing a "threshold"
Microsoft's new "equity method investment" disclosure shows that the company's relationship with OpenAI has entered a new phase, at least from an accounting point of view, said McKenna, who writes The Dig newsletter.
"They may have had an equity investment before. But they did not disclose it, likely since it was probably soft money credits and minimal cash or none, so not material," McKenna said. "With latest round, it crossed a threshold."
Microsoft has even started disclosing changes in the value of its OpenAI stake, according to Wednesday's SEC filing.
"Going from 'partnership' to 'equity method investment' disclosure, including that losses are being recorded for their share, is a big change," McKenna added.
During an analyst call on Wednesday, Microsoft was asked about changes in its relationship with OpenAI.
"Not to get too accounting heavy on the earnings phone call, but I would say just a reminder, this is under the equity method, which means we just take our percentage of losses every quarter," Microsoft CFO Amy Hood said, according to a transcript of the call.
Microsoft has had a relationship with OpenAI since 2019, using the startup's large language models to underpin its own generative AI products, such as its AI assistant Copilot. In return, Microsoft provides OpenAI with massive cloud-computing resources.
The relationship between the companies has evolved in recent months. In the July filing, Microsoft listed OpenAI as a competitor for the first time.
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