The Unraveling of OpenAI and Microsoft's Bromance

0:04At the White House last week, OpenAI CEO Sam Altman was part of a big announcement. His event at the White House was alongside the leaders of three leading artificial intelligence companies that are committing billions into a joint venture called Stargate. Stargate will build data centers and help generate electricity to support A.I. A five hundred billion dollar private venture to focus on A.I. Alongside Altman, there was President Donald Trump and two other CEOs, one from the database software company Oracle and the other from tech investor SoftBank. What stood out to you about the presser? This was clearly a big deal for all the involved people.

0:52The image of all these guys in the White House talking about this and the enormous amounts of money that they were planning to raise and deploy in service of this project. I don't know. It was a whole to-do. That's our colleague Tom Doton. Tom said there was another thing that stood out. One major player who wasn't part of the show. Not pictured, not up there talking in front of the press was Microsoft. And the CEO, Satya Dadella, was thousands of miles away in Davos for the World Economic Forum. And why is that interesting that he wasn't there? Microsoft is the sugar daddy of, so to speak, of open AI.

1:35They have poured more money by a huge margin than anyone else into this company. And Sam Altman appears at almost every Microsoft event. Anytime they're rolling out a giant new piece of software that involves OpenAI's products in there, or they just generally have a big event, Sam and Satya will usually be there on stage. To go from that to one of the biggest announcements in OpenAI's history, and Satya Nadella's not there, is pretty striking.

2:06Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Tuesday, January 28th.

2:19Coming up on this show, is the biggest bromance in tech falling apart?

2:40The relationship between OpenAI and Microsoft started in 2018. Their meet-cute was at a summit for business moguls, where OpenAI CEO Sam Altman ran into Microsoft CEO Satya Nadella. At the time, OpenAI needed more computing power and was looking for funding. To this point, OpenAI had been actually using Google as its technology provider, and Microsoft kind of was interested in being their provider. And so the next year in 2019, OpenAI gets a$1 billion investment from Microsoft. Hi, I'm here with Sam Altman, CEO of OpenAI. Today, we are very excited to announce a strategic partnership with OpenAI.

3:27So, Sam, welcome. Thank you very much. And it kind of kicks off the beginning of this multi-year and like multi-billion dollar invested relationship between these companies. Altman called OpenAI's relationship with Microsoft the best bromance in tech. The two companies had an exclusive partnership. OpenAI would get access to Microsoft's data centers and its cloud computing power. And then from the Microsoft side of things, they get exclusive early access to their software that gets built. So when something like ChatGPT gets built, Microsoft gets a relatively early look at it. Microsoft can tweak it and build it into their own products and, you know, just generally get exclusive access to that company's intellectual property.

4:17The relationship between OpenAI and Microsoft worked. And it became even more serious after the 2022 release of OpenAI's viral chatbot. Chat GPT. Maybe you've heard of it. If you haven't, then get ready, because this promises to be the viral sensation that could completely reset how we do things. As OpenAI kept scaling up its technology, the company needed more computing power. And that's where it started butting heads with Microsoft. And so OpenAI over the years would continually ask for more resources for Microsoft. And, you know, Microsoft, they have their own projects, too, that they're building.

4:58They have software that needs cloud computing. And from the Microsoft point of view, they were giving them everything that they could. They were pulling chips from other projects and giving them to OpenAI so they could train all of their models. But from OpenAI's perspective, they just weren't getting enough. So from the people you talked to, what did they tell you that OpenAI did? OpenAI would say, you're not giving us enough resources. And frankly, we'd like to take our business elsewhere. We'd like to use other cloud computing platforms that will give us enough resources. And Microsoft would come back to them and say, that's a violation of our exclusivity agreement.

5:34You guys can't bring your business elsewhere. And then OpenAI would respond and say, well, our agreement is that you guys give us enough resources to train our software. So you're the ones who are in violation of the agreement. And these negotiations would happen on and off over almost the entirety of their relationship. Despite these tensions, the two sides remained committed to their partnership. That was visible in late 2023, when OpenAI's board of directors unexpectedly fired Altman as CEO over internal differences. But just days later, Altman was rehired. Sam Altman is back at OpenAI. That's after what can only be described as, frankly, a stunning reversal in a drama that has, of course, transfixed Silicon Valley and the global tech industry.

6:23And a key player behind Altman's return was Satya Nadella. Satya plays a huge role in getting Sam reinstated. He really wanted him back in control at that company. And so that's an interesting moment because in a lot of ways that kind of cemented the strength of the relationship between those two personally. But Altman was still jockeying for more and more computing power. Last year, he went out to try to raise$7 trillion from partners other than Microsoft to, among other things, manufacture semiconductor chips. Microsoft, meanwhile, was building out its own AI business and focusing on a wide variety of clients.

7:05Last March, the company spent millions to hire most of the staff from an OpenAI competitor. The best bromance in tech was cooling.

7:18This all came to a head late last year when OpenAI and Microsoft took a closer look at their exclusivity agreement. So over the last couple of months of 2024, they were in talks to renegotiate their contract. And OpenAI kind of, it would reopen this, you know, perpetual can of worms of, are they getting enough for Microsoft? Earlier this month, Microsoft said it will invest$80 billion to build out AI-related infrastructure this fiscal year. An investment that isn't just for OpenAI. And this fraying relationship was the backdrop to last week's White House announcement. That's next.

8:17Thank you. Nice to see you. Some very familiar faces. On his first full day back in the White House last week, President Trump held that press conference with Sam Altman and the CEOs of Oracle and SoftBank. Together, these world-leading technology giants are announcing the formation of Stargate. So put that name down in your books, because I think you're going to hear a lot about it in the future. A new American company that will invest$500 billion at least. And this Stargate project is to build data centers, period. That's its mandate. Yeah, yeah, basically to build multiple data centers. And there's a lot of vagueness right now, but, you know, there's also the infrastructure around the data centers, like bringing, you know, piping in the power that allow these things to work.

9:13I assume that's also going to be part of the cost. But it's all in service, yes, of these data centers. And it will be used exclusively by OpenAI. Yep, single customer. Stargate backers say they have$100 billion already and that its first data center began construction last year in Texas. The companies didn't disclose how much each partner would contribute. Why was this private enterprise project announced at the White House? It was announced at the White House because they wanted to announce it as close as possible to the beginning of Trump's administration. And you saw Ellison, Masayoshi Son, and Altman all individually and specifically giving Trump and the administration credit for this being able to happen.

10:05We wouldn't have been able to do it without you, Trump, was kind of the theme of this whole thing. I think there's a lot of regulation that still needs to be ironed out when it comes to AI. And I think all these companies want to have a hand in writing that regulation. and the closer you can get to Trump and, you know, kind of butter him up is like a good move for them. But in Trump's orbit, very close to Trump, is a tech entrepreneur who's in an open war with Sam Altman? Yeah, I don't know who you're talking about there. I think his name is Elon Musk. Oh, yeah, that guy.

10:49Elon Musk was a co-founder and early investor in OpenAI, but has been critical of how Altman's been running the company. Last year, Musk sued Altman, OpenAI, and Microsoft for alleged antitrust violations. An OpenAI spokesperson has called the suit baseless and overreaching. Microsoft hasn't commented on the case. And in the hours after the Stargate announcement, Musk posted on X that, quote, they don't actually have the money. Altman replied that Musk's assertion was wrong. Then Altman took a swipe at Musk, saying, quote, I realize what is great for the country isn't always what's optimal for your companies.

11:36Where was Microsoft in all of this Stargate Twitter drama? It's so funny to me because sometimes as a reporter, you work really hard to find sources familiar with the matter to let you know what these guys are really thinking. And sometimes they just tweet it out. And that's kind of what we're getting here. So a few hours after the Stargate announcement, Satya was asked about it on a TV interview. And his line was basically like, look, this$100 billion thing, I don't really know about that. All I know is the$80 billion that we have pledged for our AI infrastructure, I'm good for my$80 billion.

12:15Look, all I know is I'm good for my$80 billion. I am going to spend$80 billion. So he's like throwing shade on how much of this money is real. I think it's a fair interpretation. And again, it gets even messier because Elon has been hate tweeting or hate posting about Stargate. And in one of them, Satya responds with the crying, laughing emoji and basically says, we're not here just to hype up AI. We're here to build software and products that actually benefit people and make their lives better. And it's hard not to see that again as at least a little bit of a shot at Sam, who is kind of getting labeled as sort of a hype man when it comes to AI.

12:58And so, yeah, it seemed like in that particular exchange, both Elon and Satya were kind of on the same side and sort of clowning on Sam. Here was OpenAI's sugar daddy turning on him publicly. And there was more. Around the same time Altman was at the White House, Microsoft was publishing a blog post that said the company's relationship with OpenAI had evolved. The agreement was that basically OpenAI will continue to come to Microsoft when they have requests for more data center capacity. The difference is that now, if Microsoft decides it doesn't want to build the new capacity that OpenAI is requesting, OpenAI is now allowed to take that request elsewhere.

13:47They're opening up their relationship. Yes, it is an open relationship now, more so than it's really ever been. Polyamory? Sure. If that's the direction you want to go with it, then yeah, I think you could say these guys are in some sort of a poly situation. Microsoft says it continues to be OpenAI's primary partner. And today, Altman tweeted a picture of him and Nadella, saying the next phase of their partnership is, quote, going to be much better than anyone is ready for. How important is Stargate to OpenAI's future? I mean, I think really important. I think they weren't getting what they needed from Microsoft.

14:31Microsoft was not building data centers at the speed and rate that they wanted. And so they needed to take matters into their own hands. And if they kind of have way more control over the construction of these data centers, then, yeah, I think it's like, I think it's essential to that vision. Open AI has said it needs bigger and bigger data centers to run its models. But this week, that notion was challenged by a company in China called DeepSeek. DeepSeek said it had created an AI comparable to OpenAI's without using any of the incredibly expensive chips that OpenAI relies on. In a post yesterday, Altman called DeepSeek's model impressive and said it's, quote, invigorating to have a new competitor.

15:22So in thinking about the Stargate project, what does Microsoft's role, or lack thereof, say about the overall state of AI? Well, I guess things have grown a lot since, you know, Microsoft and OpenAI first began their relationship. And the level of resources that a company like OpenAI needs is kind of at like an unprecedented level or like just a hard to predict level than it probably was in like 2019. So I think as far as that goes, it's a recognition that we're in a totally different era when it comes to the amount of resources and money that it takes to build these sort of things. I think what's interesting that Satya brought up in a TV interview is that there's a bit of a divergence between these two companies in terms of their priorities and ambitions.

16:20Because OpenAI is out there trying to build what they call artificial general intelligence or an AI that has the same level of smarts and capabilities as a human. And that's not really Microsoft's goal at all. They want to build software and AI that can help people create Word documents faster and Excel spreadsheets and write marketing emails and make you a more efficient worker. and the more that OpenAI, you know, consumes these sort of resources and is trying to build models at this enormous scale, Microsoft is kind of diverging from that because they're out there to, like, get a return on their investment.

17:05Like, they need to make real revenue from this. Do you see these two partners splitting up in the future? Yeah, it's too soon to make that call and I think it depends on what splitting up really means. I would find it hard to believe that there is a future where Microsoft and OpenAI are just like on non-speaking terms, that they're just, you know, in completely different worlds. And there's so much about what Microsoft does right now in terms of the software they build that is rely on an OpenAI software. They're just too like, there's too much history in that relationship, you know.

17:51News Corp, owner of The Wall Street Journal, has a content licensing partnership with OpenAI.

18:02That's all for today, Tuesday, January 28th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Deepa Sitharama. Thanks for listening. See you tomorrow.