OpenAI’s Stargate deal heralds shift away from Microsoft

Microsoft’s absence from OpenAI’s Stargate announcement follows months of tension between the companies and signals a new era in which the longtime partners will be less reliant on each other.

At a White House press conference, the ChatGPT maker announced Stargate, a venture with Oracle and tech investor SoftBank. The new company plans to spend up to $500 billion building new data centers in the U.S. to help power OpenAI’s development.

The assembled leaders—OpenAI’s Sam Altman, Oracle’s Larry Ellison, SoftBank’s Masayoshi Son and President Trump—discussed how AI could create jobs and even cure cancer. Microsoft CEO Satya Nadella was thousands of miles away, at the World Economic Forum in Davos, Switzerland.

The developments show how the OpenAI-Microsoft partnership that helped trigger the generative-AI boom is drifting apart as each company focuses on its own evolving needs.

In the months leading up to the announcement, the two sides had been haggling over what to do about OpenAI’s seemingly insatiable appetite for computing power and its contention Microsoft couldn’t fulfill it even though their agreement didn’t allow OpenAI to easily switch to others, said people familiar with the discussions.

OpenAI is almost entirely reliant on Microsoft to provide it with the data centers it needs to build and operate its sophisticated AI software. That has been part of their agreement since Microsoft first invested in 2019. With the success of ChatGPT, OpenAI’s need for computing power surged. Its executives have said ending the exclusive cloud contract could be crucial to compete with rival AI developers that don’t have the same constraints.

The two have been arguing over capacity on and off for years, the people said, and talks have intensified in recent months. Like other tech giants, Microsoft has rapidly increased its investment in AI infrastructure and recently said it would spend $80 billion on AI data centers in its current fiscal year. But it also has other customers and partners besides OpenAI.

OpenAI has wanted Microsoft to allow it to get cloud computing elsewhere, such as Google. Microsoft has insisted that would be a violation of the exclusivity agreement. Altman has complained that Microsoft was violating the agreement by not providing it with enough data center capacity, people familiar with the matter said.

Last year, OpenAI and Microsoft discussed building their own supercomputer for training OpenAI models but it didn’t happen, people familiar with the matter said. Some of the details about the supercomputer were earlier reported by The Information.

While Microsoft wasn’t the center of the announcement this week, Altman maintained that his relationship with his biggest backer remains good.

When one X user said Stargate meant that the friendship between OpenAI and Microsoft was over, Altman responded with a popular internet misspelling of the word “more.”

“absolutely not! very important and huge partnership, for a long time to come,” he posted. “we just need moar compute.”

Microsoft said the relationship between the two companies is still strong. Nadella said in a television interview that Altman wants to build enormous AI models and Microsoft wants to focus on integrating it into software.

“This was an adjustment, quite frankly, that we made in order to support both his needs while at the same time keeping the integrity of what we wanted as the strategic value,” he told CNBC on the sidelines of the World Economic Forum.

Microsoft has invested nearly $14 billion in OpenAI since 2019, making it the startup’s largest investor by far. OpenAI is a major customer for Microsoft’s Azure cloud business, and its technology is the backbone of Nadella’s broader AI strategy.

Details of Stargate’s structure and financing are still unclear. If the venture builds even part of the announced infrastructure, it could give OpenAI a competitive edge. For Microsoft, Stargate could mean it has less of a hold on its AI partner but also be exposed to less risk.

In its own announcement coinciding with the Stargate rollout, Microsoft said much about its relationship with OpenAI will remain the same. It will continue to host OpenAI software on its Azure cloud computing platform. That means when people use software like ChatGPT, OpenAI has to pay Azure. It will also continue to build some new data centers for OpenAI

Microsoft said when OpenAI requests computing capacity beyond its current agreement, it gets first dibs on whether it wants to build them. If Microsoft passes, OpenAI can solicit other companies.

Microsoft executives have had mixed feelings about the benefits of building high-end data centers to train OpenAI models, said a person familiar with the matter. While training AI models gives Azure experience with cutting-edge AI technology, it is expensive and has limited immediate financial upside. Training is how AI models are built. It is after they are trained that they can be used for marketable products.

Altman first approached Microsoft in 2018, asking it to help finance the company. Despite some resistance from leaders like then-chairman Bill Gates, the company invested and began allocating significant resources for the startup—often at the expense of its in-house projects.

In late 2023, OpenAI’s board of directors unexpectedly fired Altman as CEO. Nadella played a central role in helping Altman return to his post, at one point publicly offering to hire Altman and departing members of OpenAI’s team to create an AI unit within Microsoft. Altman was reinstated as CEO within five days.

The episode drove home the precarity of Microsoft’s reliance on an unstable AI partner.

Microsoft has diversified away from OpenAI. It invested in French competitor Mistral AI and offers Meta’s Llama models on Azure. Last year, Microsoft incorporated models from OpenAI’s rival Anthropic into its popular AI coding assistant GitHub Copilot.

The details of how and when the money will be raised for the build-out remain to be seen. Elon Musk, whose xAI is a competitor to OpenAI, questioned the scale of the announcement.

Musk wrote on X that two of the companies behind the project didn’t have enough capital to follow through on their pledges. Altman responded that Musk was wrong.

Berber Jin contributed to this article.

Write to Tom Dotan at tom.dotan@wsj.com and Deepa Seetharaman at deepa.seetharaman@wsj.com