How OpenAI-Oracle's $300B AI cloud deal affects Microsoft
What's the story
OpenAI's decision to sign a staggering $300 billion cloud deal with Oracle, starting in 2027, has rattled the balance of power in the AI and cloud industries. The agreement, among the largest technology contracts ever, will see Oracle provide massive computing capacity to power OpenAI's next generation of artificial intelligence models. The move significantly diversifies OpenAI's cloud partnerships, which until now were almost synonymous with Microsoft's Azure platform.
Market impact
Deal dilutes Microsoft's exclusivity
For years, Microsoft has been OpenAI's closest ally, pouring tens of billions of dollars into the company while integrating its models across Windows, Office, GitHub, and Azure. That partnership gave Microsoft a unique advantage in the AI arms race, positioning Azure as the primary infrastructure provider for OpenAI's workloads. But Oracle's entry at such scale dilutes that exclusivity, signaling that OpenAI intends to avoid being tied to a single cloud partner.
Strategic shift
Microsoft likely to suffer major revenue hit
This shift has direct implications for Microsoft's cloud revenues. Hosting OpenAI's models consumes vast computing resources, which translates into lucrative infrastructure contracts. With Oracle now expected to provide 4.5 gigawatts of data center capacity, Microsoft stands to lose a share of these workloads, and by extension, a portion of its future Azure revenues. Still, Microsoft retains several advantages. Its deep financial stake in OpenAI ensures long-term alignment, and its products remain the primary distribution channel for OpenAI models.
Capacity expansion
OpenAI's cloud deal with Google
Earlier this year, Reuters reported that OpenAI had also signed a cloud deal with Google, despite their rivalry in artificial intelligence. If confirmed, the Oracle contract highlights OpenAI's aggressive strategy to secure capacity for its next wave of AI breakthroughs. The company's willingness to pay so much for compute shows its appetite and plans for future growth.
Financial outlook
Other investments and growth for OpenAI
OpenAI has announced several infrastructure investments over the past year, including a commitment to spend around $60 billion annually for compute from Oracle and $10 billion to develop custom AI chips with Broadcom. The company also reported hitting $10 billion in annual recurring revenue in June, up from about $5.5 billion last year. This figure includes revenue from consumer products, ChatGPT business products, and its API.