I am surprised and glad that journalists are reporting on this. OpenAI is the hinge in the whole AI bubble, and it has every incentive to keep its financials private if it is not very flattering. So, thats the place to look for funny business - specially given their outlandish and provocative announcements of 16GW of datacenter buildouts which defies economic sense and demands more scrutiny.
This sounds like a terrible approach to accounting. Surely large public companies should account for their expenditure at greater fidelity than billions.
This is a silly article. Since MSFT took a ~49% stake in OpenAI, it records its share of OpenAI's net losses in the other income line under the equity method of accounting. MSFT is offsetting its taxable income based on a prior investment
The complaint is not that MSFT is reporting the loss. It's that, in terms of both the % of OpenAI and the dollar value of the stake, it's large enough that there should also be a related party disclosure.
IANAA so I don't know how true that is. Just wanting to point out that I don't think you're responding to the key point of the article.
Companies have a lot of tools at their disposal to hide things on their balance sheet for a while. However when that happens it typically means the numbers are bad. Really bad. If they weren’t, they’d do everything they can to highlight how great the investment is going.
Same reason why seemingly every CEO on the planet is making hand wavy statements about how their company is leading with AI and it will revolutionize their industry, and yet almost nobody is willing to break out this amazing stuff in their P&L. Funny how that works.
I think you’re calling out two different phenomena: 1) the gold rush mentality leads to bad investments (at least in the short term), and 2) in a hype bubble companies are incentivized to attach everything to the hype, even if it’s not real (many companies talk AI but aren’t seriously investing).
Both are true in many cases. But to the extent companies are making major investments that are strategically correct but won’t make money for years, it’s still the right move to hide stuff in financial statements.
Markets don’t reward long term investments. Everything has to be short term, and if it’s not paying off instantly, short term investors get no value and want it stopped.
Net result: lots of PR about AI, but almost every company is incentivized to downplay it financially.
AWS is a great example of the opposite, started around ~2006, it was originally deemed an "internal project" so they did not break it out. It was also really really tiny compared to retail revenue (amazon.com). They didn't actually start to break it out until 2015 and that is after wall street was somewhat demanding for it as it was well known it had experienced exponential growth and was generating billions for amazon. Were they trying to had bad numbers? Negative, they were trying to hide how awesome it was doing because it gave them the ability to make further gains w/ first mover advantage before competitors could react.
> Companies have a lot of tools at their disposal to hide things on their balance sheet for a while. However when that happens it typically means the numbers are bad. Really bad. If they weren’t, they’d do everything they can to highlight how great the investment is going.
There are many legitimate reasons to not disclose an investment on your balance sheet:
- materiality: immaterial compared to overall position
- classification: research-phase or contingent on future event
- control & ownership: if you don't have significant control or ownership
- off-balance sheet arrangements: SPVs, JVs, lease agreements that don't meet consolidation criteria (disclosed in notes, but not recognized as assets or liabilities due to limited exposure)
- strategy or confidentiality: minimize visibility to protect competitive information or negotiations; must still comply with disclosure rules so details might appear in aggregated or summarized form
- regulatory or accounting policy differences: IFRS vs. US GAAP have different recognition and measurement bases
- held-for-trading or short-term nature: e.g. marketable securities might be short-term trading assets so would be grouped together in a single line item, rather than disclosed separately
I wonder if this is how it felt shortly before the dot com crash. So enraging that my livelihood is likely to end up threatened by people just flat out lying and they will not experience any consequences for it.
Does Microsoft even have an OpenAI stake? Their original more public deal was revenue sharing up until they reached 100x $1 billion. That doesn't sound like a stake.
They also had tech sharing valid until the OpenAI board declares 'AGI'.
That seems like a really bad deal. And that was probably at the time when Microsoft had the most leverage to make a deal. Their subsequent deals would make sense to be worse.
I always had a critical eye on the huge missteps that Microsoft had especially when it came to acquisitions like Danger, Nokia, whatever the ad network they bought and wrote down, etc.
And then I listened to an Acquired podcast about Microsoft when they interviewed Ballmer as part of the research. He said “At the end of the day, it was only money”. In other words, Microsoft was throwing off so much money from their profitable businesses, they could afford to lose money and take risks without it having any meaningful impact on the company.
The deal with OpenAI is really a nothingburger as far as cash. They aren’t spending any. They are giving OpenAI Azure credits and in return have a huge upside potential.
The most valuable thing MS gets from its OpenAI dealings is that they can incorporate its AI in all their products. If you look at it as a defensive move to protect the value of Office, Windows, etc. from an AI focused competitor it's worth absorbing the losses. But try showing that on a balance sheet!
Plus, of course, if OpenAI makes money, that's also good for them.
We should be more worried about OpenAI forever twisting the word "Open" the same way as the "Democratic"/"Republic" in the names of countries like North Korea etc.
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[ 2.8 ms ] story [ 37.5 ms ] threadMegacorps control so much of them that the financial side has so little volatility.
Expect lots of hand wavy “non-GAAP” numbers pushed by leadership trying to gloss over their failed AI investments.
That’s earnings call speak for “If you ignore the pile of your money we lost with bad AI investment decisions, we’ve had a good quarter. Moving on…”
IANAA so I don't know how true that is. Just wanting to point out that I don't think you're responding to the key point of the article.
"They just write it off."
"Write it off what?"
"Jerry, all these big companies, they write off everything."
Same reason why seemingly every CEO on the planet is making hand wavy statements about how their company is leading with AI and it will revolutionize their industry, and yet almost nobody is willing to break out this amazing stuff in their P&L. Funny how that works.
Both are true in many cases. But to the extent companies are making major investments that are strategically correct but won’t make money for years, it’s still the right move to hide stuff in financial statements.
Markets don’t reward long term investments. Everything has to be short term, and if it’s not paying off instantly, short term investors get no value and want it stopped.
Net result: lots of PR about AI, but almost every company is incentivized to downplay it financially.
https://www.channelfutures.com/cloud/amazon-com-breaks-out-a...
There are many legitimate reasons to not disclose an investment on your balance sheet:
- materiality: immaterial compared to overall position
- classification: research-phase or contingent on future event
- control & ownership: if you don't have significant control or ownership
- off-balance sheet arrangements: SPVs, JVs, lease agreements that don't meet consolidation criteria (disclosed in notes, but not recognized as assets or liabilities due to limited exposure)
- strategy or confidentiality: minimize visibility to protect competitive information or negotiations; must still comply with disclosure rules so details might appear in aggregated or summarized form
- regulatory or accounting policy differences: IFRS vs. US GAAP have different recognition and measurement bases
- held-for-trading or short-term nature: e.g. marketable securities might be short-term trading assets so would be grouped together in a single line item, rather than disclosed separately
They also had tech sharing valid until the OpenAI board declares 'AGI'.
That seems like a really bad deal. And that was probably at the time when Microsoft had the most leverage to make a deal. Their subsequent deals would make sense to be worse.
https://www.cnbc.com/2025/10/23/trump-white-house-east-wing-...
And then I listened to an Acquired podcast about Microsoft when they interviewed Ballmer as part of the research. He said “At the end of the day, it was only money”. In other words, Microsoft was throwing off so much money from their profitable businesses, they could afford to lose money and take risks without it having any meaningful impact on the company.
The deal with OpenAI is really a nothingburger as far as cash. They aren’t spending any. They are giving OpenAI Azure credits and in return have a huge upside potential.
Plus, of course, if OpenAI makes money, that's also good for them.
https://assets.msn.com/content/view/v2/Detail/en-in/AA1Pg1O4...