Why Microsoft's controversial OpenAI partnership is actually a safety net for the stock

By Christine Ji

Microsoft has offloaded OpenAI's risks while keeping the benefits, making it the best Big Tech AI play, according to one analyst

D.A. Davidson estimates that Microsoft captures roughly 75% of OpenAI's Azure AI spending.

Microsoft's close relationship with OpenAI might seem like a red flag - but it could actually be the key to helping the company outperform the rest of the "Magnificent Seven," according to one analyst.

Rising concerns about an artificial-intelligence bubble and OpenAI's financial sustainability have weighed on Microsoft's stock (MSFT), which is down 7% in the past month. D.A. Davidson analyst Gil Luria, though, thinks skeptical investors are missing out on a clear-cut winner.

Luria wrote in a Thursday note to clients that Microsoft has engineered its partnership with OpenAI to limit its downside risks while keeping the most lucrative rewards, making its stock one with the "best AI exposure, bubble or no bubble."

After OpenAI's restructuring into a public-benefit corporation, Microsoft owns a 27% stake in the for-profit business. Microsoft also retains near-term access to OpenAI's intellectual property. The recent restructuring also gives OpenAI more flexibility to pursue cloud providers outside of Microsoft.

As a result, companies like Oracle (ORCL) and CoreWeave (CRWV) run most of OpenAI's "lumpy and unpredictable" training workloads, Luria wrote. Microsoft retains control over the more profitable inference compute, or the real-time processing of data in the large language model.

Read: Microsoft's stock rises as new OpenAI partnership comes as a relief to investors

Luria estimates that Microsoft captures roughly 75% of OpenAI's total Azure AI spend. Even in a downside scenario where OpenAI shrinks to focus solely on its research lab and ChatGPT, Microsoft has the "more secure portions" of that revenue stream, according to Luria.

And unlike Alphabet (GOOGL) (GOOG) or Meta Platforms (META), which are primarily building their own models, Microsoft is focusing on hosting third-party models and collecting revenue from the compute traffic on its platform, Luria added. This model-agnostic approach means that Microsoft won't lose out in the AI race even if OpenAI were to fall behind.

Luria argued that Alphabet, which has recently gained momentum on its Gemini model and custom chips, has actually become overvalued on a forward price-to-earnings basis as a result.

Microsoft's entire Azure business has been growing rapidly, outpacing Google Cloud and Amazon.com's (AMZN) AWS with its 40% growth last quarter. While a report yesterday suggested that Microsoft lowered AI-sales quotas, causing the stock to sell off as much as 3%, D.A. Davidson's proprietary Azure developer data showed robust activity in the business.

Luria reiterated his buy rating and $650 price target on the stock, calling it his "favorite mega cap pick."

-Christine Ji

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12-04-25 1930ET