Microsoft Rewrites Its OpenAI Playbook Just Days Before Earnings

Microsoft ends revenue-sharing fees, gains 20% from OpenAI, and loses exclusivity as AWS integration looms ahead of Q3 earnings.

The relationship between Microsoft and OpenAI has undergone its most significant restructuring since the partnership began, with changes that fundamentally alter the financial dynamics between the two companies. The exclusive technology licensing agreement that once defined their collaboration officially ended on April 27, just two days before Microsoft is set to report its fiscal third-quarter results.

Under the revised terms, Microsoft no longer pays revenue-sharing fees to OpenAI when customers access the startup's AI models through Azure. That shift alone should provide immediate relief to operating margins on the software giant's AI services. The money flows have effectively reversed: OpenAI will now pay Microsoft a 20 percent revenue share, capped and running through 2030.

The so-called AGI clause has also been scrapped from the contract. Previously, licensing conditions and payment obligations were tied to the achievement of artificial general intelligence. Those financial rights and obligations now stand independently of any technological milestones.

What the End of Exclusivity Means for Both Sides

The most consequential change is that OpenAI can now license its technology to Microsoft's cloud rivals. Amazon CEO Andy Jassy confirmed shortly after the announcement that OpenAI models will be integrated into AWS in the coming weeks, with reports indicating the startup secured a multi-billion-dollar cloud infrastructure deal with Amazon.

Microsoft remains OpenAI's largest cloud partner and retains a 27 percent stake, making it the single biggest shareholder. New products will still debut on Azure first — provided Microsoft has the capacity to support them. The software giant also maintains intellectual property control over OpenAI's models for another six years, a point that Wedbush analysts highlighted when reaffirming their "Outperform" rating with a $575 price target.

Evercore ISI views the restructuring positively, noting that the more predictable long-term terms allow Microsoft to focus entirely on its own Copilot ecosystem. Oppenheimer also maintains an "Outperform" rating but trimmed its price target to $515.

Azure Growth Takes Center Stage

When Microsoft reports earnings on Wednesday, all eyes will be on the cloud business. The market consensus calls for revenue growth of roughly 16 percent to just over $81 billion, with earnings per share expected to exceed $4. Management has guided for constant-currency Azure growth of 37 to 38 percent. In recent quarters, capacity constraints have capped that momentum, and investors are looking for evidence that the massive spending on data centers is converting surging demand into measurable revenue.

The company is simultaneously pushing toward hardware independence. The second generation of its in-house AI accelerator is already handling workloads for Microsoft 365 Copilot and current OpenAI models. By shifting to proprietary chips, Microsoft aims to reduce reliance on external suppliers — but the effort comes at a staggering cost. More than $100 billion is flowing into infrastructure this fiscal year alone.

Legal Headwinds and Stock Performance

A federal trial adds another layer of complexity to the earnings narrative. Jury selection began Monday in a case brought by Elon Musk against OpenAI and Microsoft, seeking damages in the hundreds of billions of dollars over an alleged breach of the startup's original founding agreement.

The stock has shown resilience despite these pressures. After a recent recovery, shares closed Monday at €361.60 in Frankfurt, up roughly 15 percent over the past month. A relative strength index reading of nearly 27 suggests the stock is technically oversold. In New York, the stock dipped about 2 percent on Monday to around $420, reflecting initial investor unease about losing the exclusivity that was long considered a core competitive advantage.

RBC maintains a "Buy" rating with a $640 target, while Evercore is targeting $580. The earnings report will provide the hard data on whether Microsoft's transition from capacity-constrained growth to full revenue realization is on track.