WSJ: Microsoft is Still Not Meeting Its Financial Disclosure Requirements

The Wall Street Journal reports that Microsoft still isn’t meeting its financial disclosure requirements regarding its investments and costs associated with OpenAI.

A former financial analyst, WSJ reporter Jonathan Weil writes this morning that Microsoft is required to report “related-party transactions” when they are material to its earnings. It’s the second time he raised this issue in the past month, the first coming just ahead of Microsoft’s most recent quarterly earnings announcement, and triggering my Transparency ⭐ editorial, as I’ve been complaining about Microsoft’s escalating lack of transparency for many years.

As part of that announcement, Microsoft vaguely disclosed that it lost $4.7 billion because of the money-losing OpenAI investment and related costs, but it did so only via an “other,net” [sic] line item in its 10Q filing with the U.S. Securities and Exchange Commission (SEC) and not in the quarterly financial statements, press release, earnings call slides, outlook statement, or other materials it provided to the press and financial analysts. And when asked about this incredible and unexpected loss by an analyst on the post-earnings call, Microsoft CFO Amy Hood shut down the conversation quickly.

“How long can Microsoft expect investors to tolerate big losses from OpenAI without getting antsy?” Weil asks. “It’s hard to say when Microsoft won’t even provide a clear number for the size of the losses.”

As Weil notes, that $4.7 billion “other,net” loss could have been more (or less) than the figure Microsoft reported, as the software giant isn’t transparent about what, exactly, it is. “The expense line combined a hodgepodge of items, positive and negative,” he says. All we know is that this figure “primarily reflects net recognized losses on equity method investments, including OpenAI.”

Microsoft also disclosed that its year-ago loss from OpenAI was $1.3 billion, a figure it did not disclose at the time at all. It has not disclosed the carrying amount—meaning, the value at which an asset or liability is recognized in an earnings report—of its OpenAI investment or its fair market value. It hasn’t disclosed how its reciprocal revenue-sharing agreements with OpenAI impacted its financial results. And it never said what percentage of OpenAI that it really owns until its recent earnings report when we finally learned that the software giant owns 27 percent of the company.

“How Microsoft has managed to avoid disclosing such basic details is baffling,” Weil writes. “The company in its financial reports identifies OpenAI as an equity-method investment. That means OpenAI, by definition, is a related party of Microsoft under the accounting rules. Microsoft, however, doesn’t identify OpenAI in its financial reports as a related party, and doesn’t say anything about its transactions with OpenAI in its related-party disclosures.”

Microsoft has an equity-method investment in OpenAI, which kicks in when a company owns 20 to 50 percent of another company, giving it the ability to “significantly influence” OpenAI. And we’ve seen examples of that, such as when Microsoft prevented OpenAI from acquiring AI coding startup Windsurf. With its recent $500 billion value, that investment is material, with a fair value of its stake in the company worth over $100 billion. Microsoft’s total earnings in fiscal year 2025 were $102 billion.

Given all this, a significant portion of Microsoft’s current valuation of almost $4 billion is tied to its OpenAI investment. That carries great potential gains, but also great potential losses. And under the generally accepted accounting principles required by the SEC to which Microsoft must comply, the firm is required to “disclose enough information about related-party transactions so that an outside reader can gain an understanding of the effects of the transactions on the financial statements.” Microsoft has never done that.

Microsoft’s $4.1 billion in OpenAI losses are roughly equivalent to 12 percent of its pretax profits, and this is the first time the company ever disclosed such a thing. Microsoft also disclosed that OpenAI, which doesn’t have $250 billion or a stated plan to get that sum, has promised to pay it $250 billion for cloud computing services. But it has not disclosed how OpenAI will fund the payments or the time frame over which they will occur.

“Microsoft’s financial statements comply fully with generally accepted accounting principles and are audited by an independent firm,” Microsoft chief communications officer Frank Shaw told the publication.

That may be part of the problem: Among my accusations, I believe that Wall Street is complicit in Microsoft’s financial deceptions, and that the SEC is not regulating companies like Microsoft that disclose fewer and fewer details with each passing quarter.

According to Weil, Microsoft could soon be forced to write down the value of its investment in OpenAI to zero, assuming OpenAI keeps losing money. Once that happens, the software giant is no longer required to disclose the financial information it is already not disclosing. But there is no doubt that OpenAI, and Microsoft’s investment in that company, is material to the software giant and its future. Even at its current valuation, the $135 billion at which its OpenAI investment is valued is a lot of money. The company has $636 billion in assets and $363 billion in equity, and the $135 billion figure is its second-biggest asset overall, after $231 billion in property and equipment.

“Microsoft hasn’t come close to explaining the full effects of its OpenAI dealings on its own financial statements,” Weil concludes. “This isn’t supposed to be optional.”