OpenAI picks Google Cloud to power ChatGPT in landmark deal
What's the story
OpenAI has partnered with Alphabet's Google Cloud, according to sources who spoke to Reuters.
The collaboration comes as a surprise given the fierce competition between the two tech giants in the artificial intelligence (AI) space.
The decision was finalized last month after months of discussions and is aimed at meeting OpenAI's growing demand for computing power.
Market dynamics
Deal shows shift in competitive landscape of AI industry
The partnership highlights how the massive computing needs for training and deploying AI models are changing the competitive landscape of the industry.
It also shows OpenAI's efforts to diversify its computing sources beyond its main backer, Microsoft.
The deal is a major win for Google's cloud unit, which will provide additional computing power to OpenAI's current infrastructure for training and deploying its AI models.
AI competition
ChatGPT threatens Google's search business
The deal comes as OpenAI's ChatGPT threatens Google's search business like never before.
Despite the fierce competition, Google executives have said that the AI race may not be winner-take-all.
Since the launch of ChatGPT in November 2022, OpenAI has seen a surge in demand for computing power to train large language models and run inference, or processing information for user interaction with these models.
Financial growth
OpenAI on track to meet full-year goal
OpenAI recently announced an annualized revenue run rate of $10 billion as of June, putting the company on track to meet its full-year goal amid the rapid adoption of AI.
Earlier this year, OpenAI partnered with SoftBank and Oracle on the Stargate infrastructure program and signed multi-billion dollar deals with CoreWeave for additional computing power.
The company is also working on its first in-house chip design to lessen reliance on external hardware providers.
Market strategy
Google Cloud has positioned itself as neutral provider
Google Cloud, which accounted for 12% of Alphabet's 2024 revenue with $43 billion in sales, has positioned itself as a neutral provider of computing resources.
This is part of its strategy to outmaneuver Amazon and Microsoft as the preferred cloud provider for AI start-ups with heavy infrastructure needs.
However, Alphabet faces pressure to show returns on its AI-related capital expenditures, expected to hit $75 billion this year while maintaining profitability amid competing AI offerings and antitrust scrutiny.