Microsoft needs to open up more about its OpenAI dealings
67 comments
·October 27, 2025JCM9
Companies have a lot of tools at their disposal to hide things on their balance sheet for a while. However when that happens it typically means the numbers are bad. Really bad. If they weren’t, they’d do everything they can to highlight how great the investment is going.
Same reason why seemingly every CEO on the planet is making hand wavy statements about how their company is leading with AI and it will revolutionize their industry, and yet almost nobody is willing to break out this amazing stuff in their P&L. Funny how that works.
zerosizedweasle
Even if this isn't Enrony, this sounds so Enrony (if you know anything about the Enron accounting scandal)
"How Microsoft has managed to avoid disclosing such basic details is baffling. The company in its financial reports identifies OpenAl as an equity-method investment. That means OpenAl, by definition, is a related party of Microsoft under the accounting rules. Microsoft, however, doesn't identify OpenAl in its financial reports as a related party, and doesn't say anything about its transactions with OpenAl in its related-party disclosures."
KoolKat23
If its equity accounted it won't be considered a related party as far as I understand. Related party in IFRS isnt what you think it is. Its the equivalent of "extended family".
kgwgk
https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/fin...
26.5 Common related party transactions
In order to comply with the related party disclosure requirements, a reporting entity must identify all of its transactions with related parties.[…]
26.5.1 Disclosure of related party equity method investments
Equity method investees are, by definition, related parties of the equity holder.
null
moralestapia
AFAIK Microsoft didn't put any kind of liquid money into OpenAI, it's something like "you can use up to nB USD of our resources for free", not sure how that should go into accounting. It could even be liability.
zerosizedweasle
Yeah, Enron didn't really put any money into its related parties, it just used to them to move things around. I don't think it is Enron, but related parties shenanigans give me the chills.
brookst
I think you’re calling out two different phenomena: 1) the gold rush mentality leads to bad investments (at least in the short term), and 2) in a hype bubble companies are incentivized to attach everything to the hype, even if it’s not real (many companies talk AI but aren’t seriously investing).
Both are true in many cases. But to the extent companies are making major investments that are strategically correct but won’t make money for years, it’s still the right move to hide stuff in financial statements.
Markets don’t reward long term investments. Everything has to be short term, and if it’s not paying off instantly, short term investors get no value and want it stopped.
Net result: lots of PR about AI, but almost every company is incentivized to downplay it financially.
JCM9
You’re not wrong, but the point of the article is that for a publicly traded company there’s an expectation of more transparency. The size of the losses is getting to a point where it can’t just be kept hidden inside a handwavy “other” line item.
adventured
> Markets don’t reward long term investments. Everything has to be short term, and if it’s not paying off instantly, short term investors get no value and want it stopped.
The AI investment bubble is almost entirely about making long-term, extremely expensive investments. That's what the gigantic datacenter build-out is about, not short-term investments and short-term returns. They're telling everybody, persistently, that they're making huge long-term bets, and the markets are rewarding them like crazy. See: Oracle's run due to long-term bets on AI (it's certainly not short-term results causing the stock to do that, their short-term growth has been mediocre).
Amazon for two decades repeatedly told investors they were making extremely expensive, long-term investments in build-out (eg their fulfillment build-out era), where the primary payoff would be far into the future. The market bought into the long-term on the basis that it was attached to Bezos at the center (that he'd be there to deliver that long-term result). The same is true about Elon Musk with Tesla: they have endlessly made outlandish long-term proclamation to drive their stock. Tesla: robot super business, self-driving taxi business, et al - these are 10-20-30 year long-term claims by Tesla and the market has aggressively rewarded it. That's because they think Musk will/might be there to guide it to actuality. In most cases investors don't buy in because they know the CEO & team won't be around even seven years from now.
Markets (investors) reward long-term if they can be made to believe in the long-term. The issue is that most companies are not believable on long-term statements, they don't have a leadership that will be around for any long-term delivery. Buffett, Bezos, Musk, Zuckerberg were/are long-term attachments so the market has been willing to buy in on various long-term bets.
jgalt212
> Companies have a lot of tools at their disposal to hide things on their balance sheet for a while.
That's why some analysts ignore most company-provided metrics and just focus on cash-flow. You need inside and outside of the house fudgers to mess with that metric.
_sword
This is a silly article. Since MSFT took a ~49% stake in OpenAI, it records its share of OpenAI's net losses in the other income line under the equity method of accounting. MSFT is offsetting its taxable income based on a prior investment
logankeenan
Can you elaborate on this a bit more? Does that mean OpenAI had a ~$9.4 billion loss so MSFT needs to put 49% of that loss in their books?
KoolKat23
Yes
toxic72
I always chuckle when tech writers take a stab at financial statements
zerosizedweasle
Heard on the Street is the financial side of the WSJ.
zerosizedweasle
How is it already losing that much money on its OpenAI investment?
JCM9
OpenAI is a textbook example of having fun by burning cash. Nobody doubts it’s “cool.” Lots of people questioning if there’s an actual business there.
impossiblefork
I think it makes Microsoft feel bigger though.
If Microsoft were just Windows, Teams, Azure, Bing and whatever it is, Microsoft would actually feel like a competitor for firms like Canonical or Red Hat or SUSE which happens to be big but nothing special relative to the others, whereas it now, with with this very public service feels like a behemoth.
Insanity
Huh, that’s a funky statement because having “Azure”, one of the largest Cloud Providers outside of China is definitely a different camp than Canonical, Red Hat and SUSE.
Although I don’t particularly like their cloud services they are undeniably an important part of Microsoft’s business. (And they also own a large chunk of the gaming industry nowadays).
mandeepj
You may not be following OA for a while! They’ve never turned a profit. So, someone on the other side has to lose for them to stay afloat!
mrweasel
> They’ve never turned a profit
Now that OpenAI is starting to talk about ads and allowing "erotic" content, I feel more comfortable in my prediction that not only have OpenAI never turned a profit, they never will. They will be consumed by Microsoft or crash the market so hard it's not even funny. The technology will survive, and it will be useful, but OpenAI as a company is done.
ml-anon
It’s amusing how “ads” is seen as an obvious way to make profit for OAI as if Google’s (especially) and Meta’s ads businesses aren’t some of the most sophisticated machines on the planet.
Three generations of Twitter leadership couldn’t make ads on that platform profitable and that exposes far more useful user specific information than ChatGPT.
The hubris is incredible.
wongarsu
Just based on the number of ads I get for thinly veiled erotic chatbots, and the success sites like character.ai have with pretty bad LLMs, there has to be a lot of money in erotic LLM content. OpenAI turning to that market is a sign they are running out of easy investor money, but if they can survive the associated controversy without lobotomizing the models this sounds like a method to turn the entire company profitable over night. They might have to raise prices or abandon the flatrate model to deal with heavy users, but locking adult content behind separate plans might even increase acceptance
Not sure if increased availability of LLM porn or the gradual erosion of LLMs with ads and sponsored content would be the greater evil on a societal level. Neither is particularly great. But they will certainly drive shareholder value
amarcheschi
The switch from "Ai might kill us" to "you'll goon to Ai" was kinda funny, not gonna lie
alangibson
This. If you really think you're a couple of years away from building Digital God, and today have virtually unlimited access to capital, you are not going to spend time shipping a sexy mode.
gosub100
Porn is enormously profitable. This might just be the saving grace for AI. Historically, porn has been a pioneer in new tech industries (home video, online commerce, video and streaming). This time they aren't first to the game but don't underestimate the industry.
ed_elliott_asc
Do you predict the same for Anthropic? Hopefully they will stick around.
A_D_E_P_T
They're in a tough place with respect to pricing. Qwen3 and DeepSeek's latest local models are too good and are practically free -- so if they try and jack up pricing to a level that ensures profitability, it won't work, as they're simply going to lose too many customers.
There's a mechanism here similar to a Laffer Curve: Charge too much, they lose; charge too little, they lose. OAI needs to strike a delicate balance vs. surging low-cost competition.
whiplash451
To be fair, MSFT is likely making a ton of money (or more likely, preventing churn) with their GPT-powered products for the enterprise.
So the math is probably harder than it seems.
Mistletoe
Surely nothing bad could happen by basing our entire economy and stock market health on these companies!
mosura
The other commenters in here oblivious to the history of companies like Amazon and Google.
Profit is what you have when you have no confidence in how to reinvest what you earn already.
smt88
Because OpenAI loses far, far more. It may be one of the least profitable companies in history.
isolay
They can open up all day long, I still don't want them forcing "AI" down my throat.
choudharism
They're doing hundreds of billions of revenue a year, a one-off 4.7B to OAI honestly sounds like nothing on that balance sheet.
an0malous
Reuters says $12B: https://www.reuters.com/business/openai-hits-12-billion-annu...
newsclues
Microsoft did $245B in revenue in 2024.
JCM9
The real story will be when companies report valuation losses from their investments in AI companies after the bubble bursts, or even deflates a bit.
Expect lots of hand wavy “non-GAAP” numbers pushed by leadership trying to gloss over their failed AI investments.
That’s earnings call speak for “If you ignore the pile of your money we lost with bad AI investment decisions, we’ve had a good quarter. Moving on…”
alangibson
Most of these data centers are built with special purpose vehicles to make the balance sheet look better. Imagine the gnashing of teeth when those get written down
JCM9
Yes… a lot of this is pretty hidden on the balance sheets but eventually GAAP catches up one way or another.
pluc
Microsoft and open... I know kids these days don't bother learning the story of things but... that's a hard sell.
thisisauserid
Oh, so they did lay people off because of AI.
exasperaited
But hey they are betting on optimism!
BolexNOLA
Maybe I just don’t know this writer very well but this is a surprising take to see on the WSJ
IlikeKitties
Knowing Microsoft I assume this is due to a sharepoint bug.
irl_zebra
This is from the Annual Report.
https://www.msn.com/en-us/money/companies/microsoft-needs-to...