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The Street

Business

Rob Lenihan

Microsoft may have a growing AI problem on its hands

Microsoft OpenAI Sam Altman ChatGPT (Person) Elon Musk Mira Murati Sarah Friar BlackRock Oppenheimer Truist

So, ChatGPT, why are so many executives leaving OpenAI, the company that developed you?

"The departure of executives from a company like OpenAI can stem from several key factors," the AI chatbot responded recently, listing several potential causes for the tech company's brain drain, including strategic shifts, leadership style, and personal reasons.

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"The tech industry, particularly in AI, can be intensely demanding," ChatGPT said. "Executives may leave due to stress, burnout, or a desire for a more manageable workload."

While these factors can contribute to turnover, the chatbot concluded that "the specifics often depend on the unique context of the organization and the individuals involved."

The question was not rhetorical.

Several top people at OpenAI have recently left the company, which is backed by Microsoft (MSFT) , including Mira Murati, the chief technology officer, Bob McCrew, and Barret Zoph, the vice president of research.

Over the past few years, OpenAI has lost several researchers who played crucial roles in developing the algorithms, techniques, and infrastructure, according to Wired.

OpenAI did not immediately respond to a request for comment, so we thought we'd get ChatGPT's two cents.

Microsoft CEO Satya Nadella could see OpenAI weigh down his company's financial results.
TheStreet/Shutterstock/Justin Sullivan/Getty Images

Microsoft-backed company raises funds

ChatGPT noted that regulatory and ethical concerns could be a reason for leaving the company, stating that "navigating the evolving landscape of AI ethics and regulations can be challenging, and some leaders might prefer to exit rather than deal with the complexities."

Several former employees told Wired that an ongoing shift to a more commercial focus continues to be a source of friction.

In 2021, 23% of OpenAI job postings were for general research roles, while in 2024, general research accounted for just 4.4% of job postings.

After Tesla (TSLA) CEO Elon Musk, an early investor, parted ways with the company, CEO Sam Altman turned OpenAI into a capped for-profit enterprise overseen by a board of directors that does not answer to investors.

"Leadership changes are a natural part of companies, especially companies that grow so quickly and are so demanding," Altman said in a post on X, formerly Twitter, which Musk owns.

"I obviously won’t pretend it’s natural for this one to be so abrupt, but we are not a normal company, and I think the reasons Mira explained to me (there is never a good time, anything not abrupt would have leaked, and she wanted to do this while OpenAI was in an upswing) make sense," he added.

The shakeup didn't seem to bother investors, who pumped $6.6 billion into OpenAI, Reuters reported on Oct. 2. This could value the company at $157 billion and cement its position as one of the most valuable private companies in the world.

Most investors are anticipating significant growth based on Altman's projections.

The funding has attracted returning venture capital investors Thrive Capital and Khosla Ventures, Microsoft, OpenAI's biggest corporate backer, and new participation from AI heavyweight Nvidia (NVDA) .

OpenAI Chief Financial Officer Sarah Friar told employees that the company would be able to provide liquidity through a tender offer to buy back their shares following the funding. However, Reuters said, citing an anonymous source, that no details and timing have been decided.

Earlier this year, the company allowed some employees to cash out their shares at a valuation of $86 billion.

Separately, OpenAI is reportedly lowering its dependency on Microsoft data centers and securing its own computing capacity. Friar says that Microsoft hasn't moved fast enough to supply the company with computing power, according to The Information.

In return, Microsoft has aimed to lessen its reliance on OpenAI technology as they increasingly compete in selling AI products, the report said.

The Redmond, WA-based software giant has said that it plans to scale its spending on AI infrastructure to meet demand.

Analyst says OpenAI losses 'primary concern'

CFO Amy Hood told analysts in July that “cloud and AI-related spend represents nearly all of our total capital expenditures.”

“Within that, roughly half is for infrastructure needs where we continue to build and lease data centers that will support monetization over the next 15 years and beyond,” she said.

Microsoft owns roughly 49% of OpenAI's equity and provides computing resources to OpenAI through its Microsoft Azure cloud platform.

Oppenheimer downgraded Microsoft to perform from outperform and removed the firm's prior price target, citing concerns about OpenAI, according to The Fly.

The firm said that it believes consensus estimates for revenue and EPS are too high, calling OpenAI losses, which could be in the range of $2 billion to $3 billion in 2025, its "primary concern."

Enterprises have been slow to adopt AI, and associated revenues are likely to disappoint, the firm said. That's not good news, at least for now, for Microsoft's bottom line.

The analyst added that, given that Microsoft is investing in “once-in-a-generation” technology, Oppenheimer does not believe expanding margins will be a short-term priority.

More AI Stocks:

Analysts at Truist had a different take on Microsoft.

The firm, which kept its buy rating and $600 price target on the company, said that its deep dive into Microsoft’s cybersecurity business has confirmed that it has become an "increasingly important" area for the software giant.

In a research note, Truist tells investors that Microsoft's comprehensive security solutions are at a scale unmatched by competitors, which is likely to continue to be a "growth vector" over the long term.

The firm added that it remains "bullish" on Microsoft's potential to gain share as a consolidator in the security stack.

Microsoft is scheduled to report earnings in the next few weeks, and Wells Fargo, which has an overweight rating on the company and a $515 price target, said that the first-quarter results are somewhat tougher to handicap given the group's significant intra-quarter model reset.

However, stronger-than-usual checks suggest that the underlying momentum for Azure is continuing, Wells Fargo said. The firm said that it expects shares to benefit as more model clarity surfaces through FY25.

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