From Nasdaq: 2024-11-10 03:30:00

Microsoft invested $1 billion in OpenAI in 2019, fearing falling behind in AI to Google. OpenAI introduced ChatGPT in late 2022, becoming the fastest-growing consumer app with 100M users in two months. Microsoft benefits from the partnership through Azure monetization, Microsoft 365 Copilot, and a profit-sharing agreement with OpenAI.

OpenAI plans to pay back $194 million in profits to initial investors, then split $17.3 billion between investors and Microsoft. Microsoft will receive 75% of profits until it recoups its $13 billion investment, then 49% until a cap is reached. Microsoft recorded a $683 million expense for OpenAI in Q1 2025. Analysts predict Microsoft will reach its funding cap in fiscal year 2026, leading to accelerated earnings growth.

Microsoft’s investment in OpenAI, while currently a headwind to earnings, is expected to pay off in the long run. Despite OpenAI not projected to turn a profit until 2029, Microsoft’s investment is seen as wise. With 91% of analysts rating Microsoft stock a buy, patient investors may see substantial growth in the coming years. The current valuation is seen as slightly expensive, but not unreasonable.

The Motley Fool Stock Advisor team recommends 10 stocks for investors, excluding Microsoft. These stocks have the potential to generate significant returns in the future. Investors are advised to consider all options before investing in Microsoft or any other stock. The Motley Fool has positions in and recommends Alphabet, JPMorgan Chase, and Microsoft.



Read more at Nasdaq: Microsoft’s $13 Billion Investment in OpenAI May Be “Some of the Best Money Ever Spent,” According to Certain Wall Street Analysts