Stargate: How Microsoft is benefiting from SoftBank, OpenAI and Oracle’s $500 billion joint AI project with zero money

Despite investing nearly $14 billion in OpenAI and using the startup’s artificial intelligence models for its next-generation cloud services, Microsoft is only partnering on technology as a joint venture between OpenAI, SoftBank Group Corp. and Oracle Corp. called Stargate. Partners are mentioned. In a blog post, the software giant said that with permission from Microsoft, OpenAI can use rival cloud services to train and run its artificial intelligence models, downplaying the exclusivity contract.

The flurry of announcements has reignited speculation that Microsoft’s relationship with OpenAI is already strained, although the two sides currently have more to gain from working together than working separately, Bloomberg reported. One thing is clear: As time goes by, Microsoft becomes increasingly unwilling to spend more money to fund the computing power OpenAI needs to stay at the forefront of artificial intelligence.

According to people familiar with the matter, Microsoft is about to reach an agreement to invest tens of billions of dollars in additional OpenAI in 2023. At the time, OpenAI CEO Sam Altman was discussing with Microsoft how to fund a massive expansion of AI infrastructure with investors in Asia and the Middle East. Any investment from Microsoft would likely further those ambitions.

Altman was then briefly fired, exposing instability at the heart of OpenAI. Altman returned as CEO, but the upheaval prompted Microsoft to abandon plans to invest more money, said a person who requested anonymity to discuss private negotiations. Altman’s infrastructure plans have changed several times since then, but Microsoft CEO Satya Nadella has lost enthusiasm for contributing big bucks.

The New York Times previously reported that Microsoft planned to invest in OpenAI.

Microsoft did inject $750 million into OpenAI’s most recent $6.6 billion funding round. But OpenAI declined to make a larger commitment, prompting Altman to look for other partners and unhappy with the contract’s exclusivity clause, which requires OpenAI to obtain all cloud capacity from Microsoft until 2030.

According to a person familiar with the matter, Nadella and Altman have had multiple conversations about the latter’s ambition to significantly increase computing power, and Microsoft may invest in an OpenAI infrastructure project in the future, which may include Stargate.

OpenAI needs more computing power to realize its ambitions, and companies of its size typically don’t work with a single partner, according to a person familiar with the matter. The person added that the revised agreement between OpenAI and Microsoft indicates that the two companies will continue to work closely together.

According to people familiar with the matter, Microsoft believes that the revised contract with OpenAI is beneficial. The software giant retains a share of OpenAI’s revenue and is the largest investor in the company, which may now become more valuable — although the stake size may decline as the startup restructures into a for-profit company changes occur. Microsoft still has access to OpenAI models, even if they were trained in data centers funded by SoftBank or Oracle.

The Stargate joint venture and realigned partnership with OpenAI also allow Microsoft to shift some of its AI spending to competitors. That’s a positive development for a company that has committed to spending $80 billion on capital spending this fiscal year, monetizing those investments faster than Wall Street expected.

Stargate has become a lightning rod, with Elon Musk accusing the project’s backers of lacking sufficient funding to realize their ambitions. “They literally have no money,” Musk wrote on his social media platform X, hours after the news was announced. Later, Musk wrote: “Satya, on the other hand, does have money.”

This prompted a rebuttal from Microsoft’s CEO.

“All this money is not to hype AI, but to build useful things for the real world!” he wrote on X.