Nadella Acknowledges Shifting OpenAI Partnership But Says Microsoft Makes Profit Off Every OpenAI Success

After pouring over $13.5 billion into OpenAI, Microsoft is finally addressing growing concerns around the profitability and long-term sustainability of the high-stakes alliance. For the first time, CEO Satya Nadella has spoken publicly about the evolving nature of the partnership—acknowledging changes that hint at underlying business tensions, even as both sides maintain they are committed to working together.

The remarks come at a time when questions are mounting about whether Microsoft’s massive investment is translating into direct financial returns, especially as OpenAI pursues its own ambitious expansion plans, such as the $500 billion Stargate project and new infrastructure deals with rival cloud providers.

In an interview with The Circuit’s Emily Chang (Bloomberg), Nadella admitted the collaboration is no longer what it once was. “Any company that has gone from being a research lab to one of the most successful product companies of this age — obviously things have to change for them and for us and in the context of the partnership,” he said, emphasizing that while the relationship is “evolving,” it remains strong.

Microsoft’s Profit Puzzle

At the core of the shift lies a fundamental issue: profitability. While Microsoft has become a leader in enterprise AI tools—embedding OpenAI’s models in everything from Windows to Microsoft 365 Copilot—the question remains how much actual revenue and profit the company is extracting from the arrangement.

Microsoft earns a cut from every query processed through ChatGPT that runs on Azure infrastructure. But building and maintaining the massive computing power needed to train and serve large AI models like GPT-4 is extremely expensive. Microsoft has not disclosed specific profit margins or return-on-investment figures from its OpenAI partnership, and the company’s recent comments suggest it is weighing whether the economics are sustainable.

Adding to the uncertainty, OpenAI’s GPT-4 has been criticized internally at Microsoft for being “too expensive and too slow” to meet the needs of mass-market consumer products.

Those concerns have reportedly led Microsoft to accelerate the development of its own in-house small language models—lighter, cheaper alternatives designed to support more nimble applications without relying entirely on OpenAI’s massive systems.

A Cooling Alliance?

The partnership has seen visible signs of cooling in recent months. Microsoft, which initially had exclusive cloud provider status for OpenAI, has since lost that exclusivity, though it retains a “right of first refusal” for future contracts. OpenAI has turned to Oracle and SoftBank as new collaborators in its expansion push, particularly as it embarks on building new data centers for AI development under its Stargate initiative.

Reports also surfaced that Microsoft canceled two major data center projects linked to OpenAI’s growing demand for computing, signaling Redmond’s unwillingness to further stretch its infrastructure to accommodate OpenAI’s increasingly aggressive roadmap.

In parallel, OpenAI CEO Sam Altman has grown more vocal about the company’s need to work beyond Microsoft. In a separate episode of The Circuit, Altman said although OpenAI has got a lot of great work with Microsoft, he thinks this is more than any one company can deliver, which means that OpenAI’s mission to reach Artificial General Intelligence (AGI) requires a broader base of support and collaboration.

Despite the increasingly public signs of divergence, Nadella insists Microsoft remains “thrilled” to have access to OpenAI’s models and continues to benefit from their success. “Having that multifaceted partnership is what we are really focused on,” he said. “Why would any one of us want to go upset that?”

He added: “Every day that ChatGPT succeeds is a fantastic day for Microsoft.” But the CEO’s remarks may also reflect a subtle recalibration: Microsoft is clearly preparing for a future in which OpenAI is no longer its sole, or even primary, AI partner.

Tech rivals, like Salesforce CEO Marc Benioff, have suggested Microsoft might eventually sever ties with OpenAI altogether, citing the growing cost and performance issues. Microsoft has so far avoided giving any indication of a formal split, but it is building out its own models, such as Phi-3, and doubling down on homegrown AI teams.

Nadella said he expects OpenAI to work with multiple partners going forward—a development he sees as natural.

However, the picture is changing fast. What began as a mutually dependent partnership has morphed into something far more fluid, as both Microsoft and OpenAI seek autonomy, scale, and profit in the fast-moving AI race.

This means that the next phase may not be about deepening ties with OpenAI, but about ensuring that the billion-dollar investment delivers real returns—or, failing that, building a competitive engine of its own.