Microsoft’s quiet investment in OpenAI: the story behind $13 billion in disclosed investment

Exploring the implications of Microsoft's stake in OpenAI and the shifting boundaries of disclosure.

“Here is the image capturing the dynamics between Microsoft and OpenAI, reflecting the themes of confidentiality and materiality in corporate partnerships.”

Source: The quote and the image above are generated by ChatGPT.

My co-author Francine McKenna of The Dig and I wrote last year about the disconnect between the broad media coverage of Microsoft’s investment in OpenAI and a puzzling lack of disclosure in Microsoft’s SEC filings. While the terms of the $10 billion deal were circulating in the press, Microsoft issued a press release acknowledging the “partnership” without confirming the size or terms of the agreement.

The pattern of silence ended when, in the 10-Q filed on October 30, 2024, Microsoft officially revealed that it would invest $13 billion in OpenAI and recorded its investment under the equity method (emphasis added):

“We have an investment in OpenAI Global, LLC (“OpenAI”) and have made total funding commitments of $13 billion. The investment is accounted for under the equity method of accounting.”

Microsoft also noted in its email response to CNBC that there is no change in Microsoft’s relationship with OpenAI:

“The additional detail is “not due to a change in our partnership or investment in OpenAI,” the spokesperson said in an email. “Our partnership with OpenAI continues to deliver results, as we build differentiated IP and drive revenue momentum.”

Notably, the spokesman’s email describes the relationship between the companies in terms of future achievements and confirms that OpenAI was important to Microsoft’s future growth and revenue projections.

So why was Microsoft so tight-lipped about the deal until now? What changed?

The critical term in disclosure-related decisions is materiality. Immaterial information does not need to be disclosed and, according to Microsoft’s comments to Jeremy Owens of the Market Watch in December 2023, the partnership was immaterial to Microsoft. (Legal experts, quoted by Market Watch, disagreed).

By that logic, the 10-Q equity method disclosure suggests that the investment is now material as of October 2024 – otherwise, it wouldn’t be disclosed. Let’s dig deeper into accounting nuances.

Behind the paywall we discuss quantitative and qualitative considerations, along with our estimate of the expected impact of the OpenAI investment on Microsoft’s bottom line.