Exclusive: Here's How Much OpenAI Spends On Inference And Its MSFT Revenue Share

Episode Transcript
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Speaker 1 (00:03):
Media. Hello, and welcome to a very special episode of
Better Offline. I'm, of course, your host ed ze trunk.
For years, I've been hunting down the core details behind
open aiyes costs and revenues, and today I'm going to
bring you some of them. A lot of what I

(00:25):
say today is going to be reflected in my newsletter,
which I'll link to in the notes. Based on documents
viewed by my newsletter, I'm able to report open aiy's
inference spend on Microsoft asure in addition to its payments
to Microsoft as part of its twenty percent revenue share agreement,
which was reported in October twenty twenty four by The Information.
In simple terms, that last bit means that Microsoft receives
twenty percent of open eyes revenue in addition to whatever

(00:48):
it spends on GPUs and servers. As a reminder, influence
is the process through which a model creates an output,
which I'll be reminding you of a few times because
it's actually kind of important. Now a few notes. I
don't have open AI's training spend, nor do I have
information on the entire extent of open AI's revenues, as
it appears that Microsoft shares some percentage of its revenue

(01:08):
from being as well as twenty percent of the revenue
Microsoft receives from selling open AI's models on as you.
What I do have, as I've mentioned, is its inference spend.
And if you're new to this, like I said, this
means all the computation's open ai does when processing requests
sent to its services like chat, GPT, and Sora. Now,
before publishing, I asked a financial time supporter to help

(01:29):
corroborate some of the data in the documents. They reached
out to Microsoft and open Ai, who both declined to comment. Now,
the following will be a lot of numbers, and it
might be easier for you to read them. However, I'm
going to try and make things as easy and clear
as possible, because the documents I've seen call into question
what we actually knew about open AI's business and the
sustainability of said business. To keep things simple, all the

(01:51):
years in this piece are calendar years. Microsoft has fiscal years.
I'm not going to play that game. It's impossible to
follow along with nobody thinks this way. Now we've done that,
let's get to him. According to the document's view by
my newsletter, open Ai spent five point oh two billion
dollars on inference alone with Microsoft Azure in the first
half of calendar year twenty twenty five. This is a

(02:14):
pattern that has continued through the end of September twenty
twenty five, by which point open ai had spent eight
point six seven billion dollars just on inference. Open AI's
inference costs have risen consistently over the past eighteen months too.
For example, open ai spent three point seven six billion
dollars on inference in twenty twenty four, meaning that open
ai has already more than doubled its inference costs in

(02:36):
just the first nine months of twenty twenty five. These
costs are dramatic and significantly higher than has been previously reported.
According to the Information, open AI's computer run models, which
I understand to mean inference, was two billion dollars in
twenty twenty four. Additionally, an April twenty twenty five piece
from the Information stated that open AI's inference costs for

(02:56):
twenty twenty five would be around six billion dollars, or
roughly two billion dollars less than open ai appears to
have spent through the end of September. I want to
be clear as well, I'm just reporting what these documents
have said. This is not a statement about the information.
They do great reporting. But then there's the issue of
the revenue share. As I've previously stated, the following numbers

(03:18):
are based on the revenue share paid to Microsoft as
part of its deal with open Ai, where it gives
Microsoft twenty percent of its revenues. According to the documents,
Microsoft received four hundred and ninety three point eight million
dollars in revenue share payments in twenty twenty four from
open Ai, implying revenues for twenty twenty four for open
Ai of at least two point four to six nine

(03:38):
billion dollars, or around one point twenty three billion dollars
less than the three point seven billion dollar number that's
been previously reported in multiple outlets. Similarly, for the first
half of twenty twenty five, Microsoft received four hundred and
fifty four point seven million dollars as part of its
revenue share agreement, implying open AI's revenues for that six
month period or at least two point twenty seven three

(03:59):
billion dollars or around two billion dollars less than the
four point three billion dollars previously reported for that period.
Through September, Microsoft's revenue share payments total eight hundred and
sixty five point eight million dollars, implying open AI's revenues
are at least four point three to two nine billion
dollars through the end of Q three twenty twenty five.
To be clear, and I'm going to say this, Microsoft

(04:22):
also pays open Ai a cut of bing's revenues under
certain circumstances I could not confirm, as well as a
cut of about twenty percent of all open ai models
sold through a zore. Just to be clear, Microsoft is
the only party that can sell open AI's models other
than open Ai. I don't have the details on those payments,
like I said, but I am skeptical that they can
account for the massive difference between those numbers that have

(04:42):
been leaked and the ones in the documents in question.
I do not know, nor will I speculate on why
these differences are so distinct. What was important about today
was getting you these numbers and shedding light on the
differences I see between the story told about open ai
and the reality of its spend and potential revenues. You've
also I probably noticed that this podcast is a bit
of a different tone to the usual no insults, no jokes,

(05:05):
haven't called anyone clammy, haven't even said a swear word
for the first time in maybe one hundred episodes. The
reason simple. These numbers are serious and seriously different to
those reported. Open AI's costs are dramatically higher than previously
reported in thought, and based on the extrapolations from Microsoft's
revenue share, its implied revenues are also seemingly dramatically lower

(05:26):
than we knew. The ramifications of these numbers are severe.
Open AI's influence costs are incredibly high, absorbing any and
all revenues and seemingly scaling with every increase in chat
GPT's user numbers. As revenue goes up, so does their
inference costs. Conversely, if these implied revenues are indicative of
the larger financial picture, open ai is not as successful

(05:47):
as company as we previously believed. In any case, the
reality of the AI bubble is becoming clearer. Inference, the
process of creating outputs for a model appears to be
an incredibly burdensome cost. And if these implied revenue is
there any indicator the actual business of selling generative AI
services and models doesn't really seem to be as good

(06:07):
a business as we thought either. It's all looking a
little bleak out there. I don't want to editorialize too
much because I want this information to sit on its
own own self. But it's it's strange being here. It's
strange getting these numbers and seeing them myself, and I
have to wonder how things work out from here. I
truthfully have no idea, but I do know I'll be

(06:30):
happy to do this every week, and I will tell
you what happens now. These numbers allow us to kind
of see the real picture of the AI bubble, and
I have to wonder what other companies look like now
that I've seen these numbers. Email me contact me Esitron
dots seventy six on signal. If you ever want to
tell me anything, do you ever want to show me anything.

(06:52):
I'm always interested to hear, and I'm honored to do
this

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Exclusive: Here's How Much OpenAI Spends On Inference And Its MSFT Revenue Share