{"id":106796,"date":"2025-10-27T15:10:10","date_gmt":"2025-10-27T15:10:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/ie\/106796\/"},"modified":"2025-10-27T15:10:10","modified_gmt":"2025-10-27T15:10:10","slug":"microsofts-openai-losses-hidden-as-part-of-4-7-billion-other-expense-stake-in-ai-company-still-doesnt-turn-a-profit-as-companies-grapple-with-ongoing-contract-negotiation","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ie\/106796\/","title":{"rendered":"Microsoft’s OpenAI losses hidden as part of $4.7 billion ‘other’ expense \u2014 stake in AI company still doesn’t turn a profit as companies grapple with ongoing contract negotiation"},"content":{"rendered":"

Microsoft<\/a>\u2019s AI ambitions are in large part tied to OpenAI, but the financial picture surrounding the connection is pretty murky. In its latest annual report, Microsoft disclosed a $4.7 billion line item under \u201cother, net\u201d expenses for the fiscal year ending June 30, with no itemized breakdown. What it did admit is that the bulk of that figure reflects \u201cnet recognized losses on equity method investments,\u201d according to reporting by The Wall Street Journal<\/a>. And while it\u2019s long been understood that OpenAI falls into that category, the filing never mentions the company by name, nor does it classify OpenAI as a related party.<\/p>\n

Under US GAAP, the equity method is applied when a company has \u201csignificant influence\u201d over another, typically with a 20% to 50% stake. That level of influence generally requires clear disclosure of material related-party transactions, particularly if the investee is financially significant. In OpenAI\u2019s case, it is. A recent secondary share sale reportedly valued OpenAI at around $500 billion. Even if Microsoft\u2019s economic stake is diluted below 49% by profit caps or partnership mechanics, the fair market value of its position is still potentially north of $100 billion.<\/p>\n

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And yet, as of June 30, Microsoft reported less than $6 billion in total equity-method investments across its balance sheet \u2014 the same figure as last year. That suggests either OpenAI\u2019s losses have wiped out Microsoft\u2019s carrying amount, or that much of the $13.75 billion it committed hasn\u2019t been recognized as invested capital in accounting terms.<\/p>\n

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That\u2019s plausible under the equity method because once the carrying value hits zero, further losses are not recorded unless Microsoft commits more funding, at which point the base resets. However, as a result of this opacity, investors cannot tell whether Microsoft is quietly losing billions on OpenAI operations, front-loading infrastructure subsidies, or holding back capital for later phases.<\/p>\n

For all its AI dominance in mindshare, Microsoft is spending aggressively to keep Copilot performant<\/a> and useful across the likes of Azure and Office. Much of that cost is still offloaded to OpenAI\u2019s inference stack, particularly for GPT-4 and Codex-class deployments. If OpenAI\u2019s losses continue to rise and Microsoft refuses to break out how much it\u2019s underwriting the back end, the company\u2019s cloud AI economics will remain speculative. The waters are further muddied by its long-standing deal with OpenAI, containing a clause that would drastically alter the terms of the two’s relationship should OpenAI achieve AGI<\/a> (Artificial General Intelligence).<\/p>\n

However, Microsoft is due to report its fiscal Q1 earnings on Wednesday, October 29. If OpenAI still isn\u2019t identified in its reporting as a related party, and the \u201cother, net\u201d line remains the only hint of how much it\u2019s bleeding to stay on top of the model race, investors will be forced to read between the lines yet again. For a $3.9 trillion company whose stock is now priced in part on AI execution, that\u2019s a risk Microsoft probably can\u2019t continue to take.<\/p>\n

<\/p>\n

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