OpenAI Lost $12 Billion in the Previous Quarter

The Wall Street Journal uncovered a bit of financial information that Microsoft tried to hide in its recent financial results: OpenAI isn’t just unprofitable. It’s historically unprofitable.

The publication reports on a calculation made by Bernstein analyst Firoz Valliji which indicates that the $4.1 billion loss that Microsoft attributed to its OpenAI investment in the quarter wasn’t just 490 percent worse, year-over-year (YOY), than its loss one year ago. Given OpenAI’s valuation at the time and our new understanding that Microsoft owned 32.5 percent of OpenAI in that quarter, it means that OpenAI lost about $12 billion overall. That’s one of the biggest quarterly losses in tech industry history.

(Matt Rosoff explains the accounting better than I ever could, so that report is worth reading as well.)

Armed with this information, I did a bit of research of my own. And according to Wikipedia, only two tech companies rank in the 15 biggest quarterly losses in history: AOL Time Warner ($44.9 billion in 2002) and Intel ($16.6 billion in 2024). These are the only tech firms to lose over $10 billion in a single quarter, and AOL Time Warner’s loss was tied to the bursting Dot Com bubble and that company’s exit from the tech industry.

OpenAI is a private company, so it’s not required to report its earnings or any information about its financial health. But it has undergone multiple rounds of financing, which makes its valuation public. And it underwent a restructuring this past week, providing a bit more information, and lowering Microsoft’s stake to 27 percent (thanks a recent higher valuation).

I’m surprised anyone noticed this figure, since it was buried in a 10-Q filing that Microsoft is obligated to make with the U.S. Securities and Exchange Commission and doesn’t appear anywhere in the earnings release or financial statements that the company provided to the press as part of its quarterly reporting. (You can find it linked from the Microsoft Investor site.)

Interesting, one financial analyst tried to bring up this topic during the post-earnings conference call. But as I wrote in Microsoft Earnings Analysis: FY26 Q1 is All About a Fungible, Planet-Scale Fleet for the AI Bubble ⭐, Microsoft shut down this line of questioning immediately. Here’s the entire exchange.

UBS analyst Karl Keirstead: “Amy, I certainly don’t want to take you down too complex an accounting path with this question. But the investment in OpenAI that sits another income at $4.1 billion is so large that I think the audience listening in could benefit from a little bit more color about what that is. It feels like it’s so much larger than you were running through other income in prior quarters that it mustn’t just be your share of the OpenAI losses. Could you just describe that and what we can expect in subsequent quarters, and whether this signals any kind of accounting change? Thanks so much.”

Microsoft CFO Amy Hood: “The [FY]Q1 number was not impacted at all by the new agreement that was put in place. Let me first say that. Secondly, that increased loss was all due to our percentage of losses and OpenAI equity method, just to be very clear. There is not anything there that is not the increased losses from OpenAI.”

Keistead: “Okay, understood. Thank you.”

It’s not clear how Hood’s response addresses the questions. The OpenAI restructuring occurred during Microsoft’s second fiscal quarter, which this analyst would have understood. The number is dramatically larger than the loss Microsoft attributed to OpenAI one year ago, and she doesn’t say why. She also didn’t address the bit about expectations for future quarters, nor did she indicate whether there are any accounting changes responsible. It’s unclear how this analyst could have been satisfied by that answer. But that was the extent of it, and no one else on the call chimed in.

“Big Tech financial reports have become marketing exercises in which these companies can tout the milestones they achieved even though none impacted revenues yet, cherry-pick the positive news that puts the company and some of its products in the best light, and then utterly ignore the bad news as often as possible by hiding those things that are failing or not profitable,” I wrote ahead of Microsoft’s earnings release in Transparency ⭐. “But the purpose of financial reporting is to give existing and potential investors the information they need to make educated decisions. That is not what Microsoft and other Big Tech firms now provide, in my opinion.”

This is just the latest example of the issues I raised in that article.