To The Moon

$Microsoft(MSFT)$  has invested heavily in OpenAI, positioning itself as one of the biggest beneficiaries of the artificial intelligence boom. But the latest financial figures raise an uncomfortable question: has Microsoft backed the right AI company?

According to figures reported by The Wall Street Journal, OpenAI recorded adjusted operating losses of US$10.9 billion in the third quarter, despite revenue growing approximately 50% from the previous quarter.

Meanwhile, rival Anthropic reported an adjusted operating profit margin of 15%, with a long-term target of 35%, according to its IPO filing presentation.

The contrast is attracting attention because the AI race is no longer just about developing the most powerful models. Investors increasingly want to know which companies can turn AI demand into sustainable profits.

1. OpenAI: Rapid growth comes with an enormous price tag

OpenAI remains one of the most important players in the AI industry. Its products have helped bring generative AI into businesses and everyday life.

Revenue growth of approximately 50% quarter over quarter is impressive. However, adjusted operating losses of US$10.9 billion highlight the enormous cost of competing at the frontier of AI.

Developing advanced models requires significant investment in computing capacity, specialised chips, data centres and engineering talent.

The challenge is that revenue growth does not automatically translate into profitability.

OpenAI needs to demonstrate that it can increase revenue while controlling infrastructure costs and improving its operating margins.

For Microsoft, this matters because the value of its investment ultimately depends on OpenAI’s ability to build a sustainable business.

2. Anthropic: A different approach to AI economics

Anthropic’s reported 15% adjusted operating profit margin presents a different picture.

Its focus on enterprise customers and AI tools such as Claude has helped establish a strong position in the business software market.

The company’s stated long-term ambition of reaching a 35% adjusted operating profit margin also gives investors a profitability target to assess.

However, there is an important caveat: OpenAI and Anthropic’s financial figures may not be directly comparable. Their accounting adjustments, business structures and investment arrangements may differ.

A single quarter also does not establish which company will dominate the industry.

Nevertheless, Anthropic’s reported profitability progress could make its planned public listing particularly interesting.

3. Microsoft’s OpenAI investment: A major opportunity with significant exposure

Microsoft’s relationship with OpenAI goes far beyond a financial investment.

According to the reported figures, Microsoft owns approximately 24% of OpenAI, with that stake estimated to be worth around US$300 billion based on OpenAI’s last reported US$1.25 trillion valuation. The actual value remains subject to dilution and other investment terms.

OpenAI has also committed to spending US$250 billion on Microsoft’s cloud services.

This creates two potential benefits for Microsoft:

• Its equity investment could increase in value if OpenAI continues growing.

• OpenAI’s computing requirements could support demand for Microsoft Azure.

But there is also a concentration risk. If OpenAI struggles to achieve sustainable profitability, investors may question the financial returns behind Microsoft’s enormous AI commitment.

4. Microsoft is not putting all its eggs in one basket

Interestingly, Microsoft has also agreed to invest up to US$5 billion in Anthropic, including a planned US$1 billion investment alongside its IPO.

Its cloud agreements with Anthropic are reportedly worth up to US$49.2 billion.

This gives Microsoft exposure to another major AI developer, although its overall relationship with OpenAI remains substantially larger.

There is also a competitive complication.

Anthropic is developing AI software tools that compete with some of Microsoft’s own products. This creates an unusual situation: Microsoft is investing in a company that could challenge parts of its existing software business.

The AI ecosystem is becoming increasingly interconnected, with technology companies acting as investors, cloud providers, customers and competitors at the same time.

5. What does this mean for Microsoft shareholders?

I think the biggest issue is not whether OpenAI or Anthropic wins the AI race next year.

It is whether Microsoft’s AI investments can generate attractive returns relative to the enormous capital being committed.

Investors should monitor three things:

• OpenAI’s profitability: Can revenue growth eventually outpace the cost of computing and model development?

• Anthropic’s progress: Can its reported profitability continue as it expands and competes with larger AI players?

• Microsoft Azure: Is AI demand translating into sustainable cloud revenue growth and improved returns on infrastructure investment?

Microsoft has a strong position in cloud computing, enterprise software and AI distribution. Even if OpenAI faces challenges, Microsoft is not dependent on a single AI company for its future.

However, the financial success of OpenAI remains important to the value of Microsoft’s investment and its broader AI strategy.

My view

I would not conclude that Microsoft backed the wrong company based on one quarter of financial figures.

OpenAI’s rapid revenue growth and huge customer reach should not be overlooked. Equally, Anthropic’s reported profitability deserves attention because the AI industry is entering a stage where financial discipline matters more.

The early AI race was about who could build the most powerful models. The next stage may be about who can deliver useful AI products, retain customers and generate sustainable profits.

For Microsoft shareholders, the real test will be whether its enormous AI investments eventually translate into earnings growth rather than simply higher spending.

For discussion purposes only.