OpenAI looms over earnings from tech hyperscalers

With four technological hyperscalers — Amazon, Alphabet, Meta And Microsoft – The only company that will report quarterly earnings after the close and is standing on its results is a company that doesn’t even disclose its financials to the public: OpenAI.

The ChatGPT creator, now valued at more than $850 billion by private investors, has become a major market mover in the past year as its revenue and high expenses are increasingly seen as a proxy for AI trading.

OpenAI was already making headlines this week due to its high-profile legal battle with CEO Sam Altman. Tesla’s CEO Elon Musk. The two former friends were among a group of technologists who founded OpenAI as a nonprofit laboratory in 2015, and they are now facing off in court after Musk sued Altman and OpenAI in 2024 for allegedly violating the founding agreement.

Before opening statements began on Tuesday, they included shares of companies. Seer, Nvidia, Advanced Micro Devices And broadcom According to the Wall Street Journal’s OpenAI report, it was going bankrupt was kidnapped revenue and user growth forecasts. The report, which OpenAI called “nonsense,” also suggested that OpenAI leaders are concerned about the company’s ability to keep up with its large financial commitments to build data centers.

All eyes then turned to the earnings reports to be released on Wednesday. The four tech giants featured in the report are among the most valuable businesses in the world, and all have clear ties to OpenAI, whether as investors, customers, strategic partners, competitors, or some combination of these characteristics.

Following Tuesday’s Journal report, Amazon announced that OpenAI models will be available on its AWS cloud computing service. A day ago, OpenAI and Microsoft announced a major change in their partnership, which was established long before the launch of ChatGPT.

Microsoft and Amazon are major investors in OpenAI; The first has invested a total of $13 billion, while the second has recently committed to investing $50 billion.

By this point, Amazon has become a closer partner with Anthropic and has been supporting Claude’s creator since 2023. With Tuesday’s announcement, AWS users have expanded options through the Bedrock service and will also be able to choose OpenAI’s flagship models.

“We view the launch as a positive for AWS customers who now have access to OpenAI and Anthropic edge models and brokered solutions within the AWS ecosystem,” KeyBanc analysts who recommend buying the stock wrote in a note to clients.

Analysts at Raymond James by Microsoft wrote Tuesday that investors are increasingly concerned “about the company’s reliance on OpenAI in several respects” and that “OpenAI is diversifying its computing system away from Microsoft.” Analysts have the equivalent of a buy rating on the stock.

Manageable threat

Alphabet is taking on OpenAI directly through its Gemini models and Gemini-powered suite of services. As ChatGPT went viral in late 2022 and early 2023, investors soured on Google over concerns that search traffic would shift to AI and Google would be left behind.

But the narrative has changed dramatically. Alphabet shares have more than doubled in the past year, far outpacing the company’s hyperscaler peers as Gemini catches up in many areas and Google’s cloud business booms thanks to rising demand for computing capacity. Meanwhile, Google’s custom-built tensor processing units, or TPUs, are becoming a popular alternative to Nvidia’s graphics processing units, or GPUs, for AI workflows in the cloud.

Analysts at Roth laid out the top Google-related controversies in a preview note last week. One of these was specific to OpenAI. “Is OpenAI a real competitive threat? Yes, but it can be managed,” wrote analysts who recommend buying the stock.

Perhaps the biggest risk posed by OpenAI in the meta is the war for talent.

Altman brought attention to the issue in a podcast in June when he said Meta was trying to poach OpenAI employees by offering signing bonuses of up to $100 million and even larger annual compensation packages.

“I heard that Meta considers us their biggest rival,” Altman said.Unlimited” The podcast was hosted by his brother. “Current AI efforts haven’t worked as well as they hoped, and I respect being aggressive and continuing to try new things.”

Andrew Bosworth, Meta’s chief technology officer, responded by saying that OpenAI opposes these proposals. He called the hiring environment “unprecedented in my 20-year career as a technology executive.”

Within AI, Meta initially competed by building open-source models and trying to capture developers who didn’t want to stick with proprietary offerings. But that approach failed, and Meta recently introduced the Muse Spark, the first dedicated model to emerge from Meta Super Intelligence Labs, run by Alexandr Wang, the company’s high-priced chief AI officer.

Early industry tests show positive results for Meta’s technology, but the company still has a lot of work to do to prove it can compete with leading model developers.

“As the company integrates Meta AI into its core applications, we expect a strategy to drive scaled consumer use similar to other AI chatbots such as ChatGPT and Claude,” Citizens analysts wrote in an earnings preview last week. “We believe this could lead to new data and advertising budgets.”

WRISTWATCH: OpenAI retracts report that company failed to meet revenue targets.