OpenAI doesn’t report earnings. It doesn’t have to, it’s a private company, structured in a way that shields its financials from the kind of scrutiny public markets demand. And yet, thanks to some careful digging by the Wall Street Journal and the unavoidable disclosures in Microsoft’s quarterly filings, we’re starting to see the outlines of a story that looks less like a revolution and more like a cover-up.
The numbers are staggering. OpenAI is bleeding billions, losses so large that Microsoft, which owns roughly 27% of the company, had to swallow a $4.1 billion hit to its own net income last quarter. That’s not a rounding error. That’s a material drag on one of the most profitable companies in the world. And yet, if you only skimmed Microsoft’s earnings release, you’d never know it.
Instead, Microsoft emphasizes Azure’s 39% growth, the rollout of Copilot across Office and Windows, and the “strategic importance” of its AI partnership. The OpenAI losses? They’re tucked away in the fine print, buried under “other income (expense).” It’s a neat accounting trick: the same partnership that drains billions from the bottom line props up the top line by forcing OpenAI to spend billions on Azure credits. Losses are reframed as growth.
This is where the illusion takes hold. OpenAI, with its nonprofit-controlled for-profit structure, has convinced the market that its burn rate is not a liability but a sign of ambition. Microsoft, meanwhile, plays the role of enabler, laundering OpenAI’s losses through its own financials while basking in the glow of AI hype.
But history has a way of catching up. Paul Thurrott recently compared OpenAI’s trajectory to AOL Time Warner, the dot-com era’s most infamous implosion. The parallels are uncomfortable: a hyped platform, a legacy giant desperate to stay relevant, and a market willing to suspend disbelief until the losses become too big to ignore.
The truth is, OpenAI looks less like a business and more like a subsidized R&D lab for Microsoft’s cloud empire. That might be fine if the economics eventually flipped, but so far, the deeper OpenAI digs, the more Microsoft has to contort its reporting to keep the illusion alive.
At some point, the spell will break. Investors will realize that AI isn’t exempt from the laws of economics, that cloud credits aren’t the same as profits, and that Microsoft’s “strategic partnership” is also a very expensive liability. Until then, the show goes on, an expensive magic trick where the audience claps, even as the stagehands scramble to keep the set from collapsing.
