Uncertainty surrounding the future of OpenAI is a net negative for Microsoft Corporation (NASDAQ:MSFT), analysts at UBS believe.
Microsoft snapped up OpenAI CEO Sam Altman to head up a new artificial intelligence research team after he was fired from the company, in which Microsoft was an early investor, by its board on Friday afternoon.
Unlike other analysts who see Microsoft as the big winner from the OpenAI reshuffle, the UBS analysts are not convinced.
And they may be right, with reports swirling on Tuesday afternoon that OpenAI’s new CEO Emmett Shear is threatening to resign unless he is told why the board parted ways with Altman, who is said to be in talks to be reinstated as the company’s leader.
“OpenAI underpins Microsoft’s AI story, and if OpenAI remains in turmoil with Microsoft’s internal ‘AltmanAI’ efforts taking time to bear fruit, then the risk profile Microsoft’s AI story just went up materially, in our view,” the analysts wrote in a note to clients.
“A loss of customer confidence in OpenAI is a net negative for Microsoft, there is no way to sugar-coat that, and even a pause in OpenAI’s spending growth on compute resources could impact reported Azure growth.”
The analysts gave Microsoft credit for mitigating this risk by hiring Altman and other OpenAI employees, including OpenAI co-founder Greg Brockman.
“If Microsoft can find a way to acquire/hire OpenAI’s intellectual property (IP) then over the medium-term we think Microsoft would be in a position to effectively rebuild OpenAI internally at a fraction of the cost, without being encumbered by the prior partnership constraints,” the analysts wrote.
Microsoft shares traded down 1.3% at US$372.55 on Tuesday afternoon but are up 0.3% week-over-week.
“We rate Microsoft ‘Buy’ with a price target of $400 based on an assumed 2025 calendar year free cash flow multiple of 40 times, a deserved premium to the peer group,” the analysts wrote.
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