Microsoft's (MSFT) relationship with OpenAI may be its "most strategic" yet, with any stake dilution in the ChatGPT maker following its October fundraising offset by a lift to Azure growth, UBS said in a note emailed Monday.
According to documents obtained by media outlets as part of OpenAI's funding round, the artificial intelligence startup expects to grow its revenue to $100 billion by 2029.
If the company can indeed hit that target, then this represents a "very bullish medium-term read-through on overall AI demand and therefore on the amount of graphics processing unit (or other accelerated hardware) capacity that OpenAI will require," UBS said.
Since OpenAI relies exclusively on Microsoft for its computing needs, a ramp up in annual computing costs to meet its revenue target would reflect on Microsoft's Azure revenue.
"If and when OpenAI is indeed able to reach $100 billion in revenues, think for a moment of the sheer magnitude of the GPU and cloud infrastructure expenses that OpenAI would be incurring," UBS wrote.
Meanwhile, OpenAI's plan to offload some of its cloud infrastructure needs to the likes of CoreWeave and Oracle (ORCL), away from Microsoft, is "not necessarily a negative" for the Windows maker "as the capital expenditure needs to solely service OpenAI could end up being so material," UBS added.
OpenAI alone is expected to represent around 40% of Azure AI revenue this year, according to the note.
UBS reiterated its buy rating on Microsoft's stock and maintained a 12-month price target of $510.
Price: 417.22, Change: -0.95, Percent Change: -0.23
Comments