OpenAI Reportedly Says Microsoft Has 'Limited' Its Ability To Reach Clients – But Bernstein Says AI Concerns Overdone

• Dresser’s comments come after Amazon announced plans to invest up to $50 billion in OpenAI nearly two months ago.
• Microsoft is the largest external investor in OpenAI, having invested more than $13 billion in the AI startup since 2019.
• However, analysts at Bernstein dismissed investor concerns about how Microsoft is allocating its capex, pointing to a timing lag between the investment and the availability of capacity to drive revenue growth.

Shares of Microsoft Corp. (MSFT) were in focus in Monday’s pre-market trade after OpenAI reportedly stated that the software giant has “limited” its ability to reach clients.

According to a CNBC report, OpenAI’s chief revenue officer Denise Dresser touted in an internal memo that demand for its services has been staggering after Amazon.com Inc. (AMZN) announced plans to invest up to $50 billion in the AI startup.

“Our Microsoft partnership has been foundational to our success. But it has also limited our ability to meet enterprises where they are — for many, that’s Bedrock. Since we announced the partnership at the end of February, inbound demand from our customers for this offering has been frankly staggering,” Dresser stated in the memo, according to the report.

Bedrock is a platform offered by Amazon Web Services, allowing companies to access all major AI models to build generative AI applications and agents.

Microsoft is the largest external investor in OpenAI, having invested more than $13 billion in the AI startup since 2019. The tech giant also played a key role in bringing Sam Altman back to OpenAI in November 2023, after he was ousted following a review by the AI startup’s board.

Bernstein Downplays Microsoft AI Concerns 

Analysts at Bernstein dismissed concerns about how Microsoft is allocating its capital expenditure, amid ongoing worries about the impact of Anthropic's models on companies like Microsoft.

Bernstein stated in a recent note that there is a timing delay between the capex investment and the capacity being available to drive revenue growth, and investors are not taking that into account, following an analysis of how Microsoft is making its investments in AI.

Bernstein also noted that while some of the capex is going toward Copilot, the investment is generating revenue from software-as-a-service (SaaS) offerings with good margins.

The firm also noted that while Microsoft is investing in training models internally, the company’s overall research and development expenses as a percentage of revenue are relatively stable.

As for revenues in Microsoft’s cloud service, Azure, Bernstein expects an acceleration in the third quarter, with fourth-quarter (Q4) numbers for the segment expected to be just as strong as Q3, if not better.

However, analysts at BNP Paribas trimmed their price target for Microsoft last week to $556 from $659, while keeping an ‘Outperform’ rating, according to TheFly.

The firm highlighted Microsoft’s higher cash capex and the allocation of 40% of its incremental capacity to its own workloads as reasons for its price target cut. BNP Paribas also cited broader derating in software stocks as another reason for the lower price target for MSFT.

Ives Downplays Anthropic Fears Dragging Down Stocks

Wedbush Global Head of Tech Research Dan Ives reiterated in a post on X that stocks' declines due to fears related to Anthropic’s Claude are the result of a “fictional narrative.”

“AI Revolution will translate into trillions being spent over the coming years for well-positioned tech winners...the stocks on the other hand currently reflecting the opposite with Anthropic fears running rampant…will prove to be a fictional narrative as tech winners prove out,” he said.

Last week, Ives dismissed Michael Burry’s bearish stance on Palantir Technologies Inc. (PLTR), even as the PLTR stock lost 12% over the previous five trading sessions.

He added that while Anthropic is hitting a new scale with an annual recurring revenue (ARR) of $30 billion, this is not at the expense of Palantir.

MSFT stock is down 23% year-to-date and 4% over the past 12 months. The S&P 500 ETF (SPY) is up 27% over the past 12 months, while the Invesco QQQ Trust ETF (QQQ) is up 34%.

Also See: Bill Ackman Begins Pershing Square IPO Marketing, Touts ‘Extraordinary Economic Characteristics’ As He Looks To Raise Up To $10B

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