Microsoft feared OpenAI reliance, Musk-Altman trial testimony reveals

Elon Musk’s courtroom battle with Sam Altman over the last couple weeks has primarily revolved around the evolution of OpenAI. But it’s also shined a light on the challenges that the rapid growth of artificial intelligence caused OpenAI’s closest partner: Microsoft.

Discovery in the high-profile case showed that Microsoft CEO Satya Nadella was worried about OpenAI supplanting his company in the tech hierarchy as far back as April 2022, seven months before the launch of ChatGPT, the event that kicked off the generative AI boom and turned Altman into a household name.

“I don’t want to be IBM and OpenAI to be Microsoft,” Nadella wrote in a email to executives that April, roughly three years after Microsoft wrote its first $1 billion check to OpenAI.

Nadella was referring to an earlier technology era, when Microsoft became more important than IBM, the dominant computer maker at the time. In 1980, IBM agreed to distribute Microsoft’s operating system on its computers, only to see the software maker eventually suck up the lion’s share of market value.

To avoid suffering the same fate, Microsoft needed to make sure that it wasn’t just providing Azure cloud services to OpenAI but was also positioned to benefit from its early intellectual property agreement with the lab that was on the frontline of large language model development.

“It was becoming even more core and important that we had real agency at every layer of the stack,” Nadella testified on Monday, in the Musk v. Altman trial taking place in Oakland, California.

In the four-plus years since the IBM quip, history has justified Nadella’s early fears. OpenAI’s models and services are so widespread that the company has ballooned to an $850 billion valuation and has forged partnerships with Microsoft cloud rivals Google, Oracle and, as of February, Amazon.

“Essentially, we were forgoing the opportunity on our side to develop it on our own, so it was very important to us to have IP rights,” Nadella said on Monday, referring to the initial pact with OpenAI.

Microsoft and OpenAI have had to change the terms of their agreement multiple times. Most recently, in April, they revamped the deal so that revenue share payments from OpenAI to Microsoft would be capped and that OpenAI could now serve “all of its products” to customers across any provider, including Amazon and Google.

The partnership remains critical to Microsoft’s cloud business, as demand continues to soar for the computing resources required to run big models. Around 45% of Microsoft’s commercial remaining performance obligations were tied to OpenAI at the end of 2025, and the software giant is building out data centers to accommodate the demand.

“Better to be an investor and not even take all this execution risk!” Nadella told executives in a July 2022 email that came out in discovery.

By June 2026, Microsoft will have spent over $100 billion on OpenAI, inclusive of investment commitments, infrastructure and hosting costs, Michael Wetter, a Microsoft corporate development executive, said in court on Wednesday.

Kevin Scott, Microsoft’s technology chief, testified that the first supercomputer his company built with OpenAI years ago took about six months, assembling together 10,000 graphics processing units that occupied a big chunk of a data center.

Scott said he’s “very proud of what we’ve enabled OpenAI to go do, both in terms of the research and the products that they’re shipping to the world.”  

Nadella said at trial that embracing OpenAI taught Microsoft how to build supercomputers that were fit for AI work, and that “one benefit of that was the know-how we would get from doing so.”

But while Microsoft has established itself as a key provider of AI infrastructure, it’s no longer uniquely positioned to offer OpenAI’s technology to customers. And Microsoft has struggled to sell its own AI story, which helps explain why its stock is down 16% this year while its cloud peers are all trading higher.

By January 2024, Nadella was saying that models were becoming “more of a commodity.” Two months later, the company hired Mustafa Suleyman, a co-founder of the DeepMind AI lab now owned by Google. Nadella made Suleyman CEO of a new AI unit, putting him in charge of Bing and other products.

With Suleyman at the AI helm, Microsoft focused on building its own models that could potentially compete against OpenAI, as well as other leaders in the space like Anthropic and Google. In August of last year, the company said it had started testing a homegrown AI model that could lead to enhancements to its Copilot assistant for consumers.

As Microsoft tries to find its footing in the world of models, the market is moving with accelerating speed. In March, Microsoft restructured its Copilot leadership team, picking a recent hire, former Snap executive Jacob Andreou, to run consumer and commercial Copilot experience. As part of the shakeup, Suleyman was left to pursue model development.

Since 2024, Microsoft has openly acknowledged that OpenAI is a competitor, and has been allying itself with other companies building AI models, including Musk’s xAI, releasing those tools to developers through Azure. Last year, Microsoft said it was tapping AI models from Anthropic for certain use cases, and soon after agreed to invest $5 billion in the the OpenAI rival.

Microsoft has AI to thank for much of its continued growth in Azure. And it has highly profitable equity investments on its balance sheet. But unlike ChatGPT, none of its AI-infused software products have become a monster hit.

That’s left the company with a scattered strategy that involves engaging with many model developers while also building its own pieces of the stack, including models and chips.

“Some of the rights we had in the early days, we were flexible and sort of let them go, so that OpenAI could continue to scale and thrive,” Nadella said on Monday. “To me, our core ethos as a company is to be a good partner and a good platform company, so we keep that as front and center, irrespective of what may be happening on the side.”

WATCH: Microsoft CEO Satya Nadella testifies in OpenAI case