The 'AI economy is currently a closed loop' - and that's probably why OpenAI, not Microsoft, invested a whopping $12bn in CoreWeave
Microsoft pulled out of a $12bn deal with CoreWeave, and OpenAI took its place.
- Microsoft pulled out of a $12bn deal with CoreWeave, citing delays
- OpenAI took over the contract, backed by Microsoft’s own investment funds
- AI sector remains a closed loop driven by a few dominant players
CoreWeave is eyeing a huge (potentially $2.5 billion) IPO in the coming weeks, but it has also had a few unflattering news stories to contend with recently.
Jeffrey Emanuel, whose viral essay described Nvidia as overpriced and led to it losing $600 billion in a single day, has described CoreWeave as a turkey and called it the “WeWork of AI”.
More recently, Microsoft chose to walk away from a nearly $12 billion option to buy more data-center capacity from the AI hyperscaler.
OpenAI to the rescue
The Financial Times (FT) reported sources familiar with the matter saying Microsoft had withdrawn from some of its agreements “over delivery issues and missed deadlines” which shook the tech giant’s confidence in CoreWeave.
The FT added that despite this, Microsoft still had "a number of ongoing contracts with CoreWeave and it remained an important partner.”
Microsoft is CoreWeave’s biggest customer, and the AI hyperscaler refuted the FT's story, saying “All of our contractual relationships continue as planned – nothing has been cancelled, and no one has walked away from their commitments.”
Shortly after that news broke, it was reported that OpenAI would be taking up Microsoft's nearly $12 billion option instead, helping CoreWeave avoid a potentially embarrassing setback so near to its closely watched IPO.
Rohan Goswami at Semafor made a couple of interesting observations on the news, noting, “This isn’t a sign that Microsoft is pulling back on AI - “We’re good for our $80 billion,” Satya Nadella said on CNBC - but an indication that the company is being more tactical about exactly when and where it spends. At the same time, OpenAI’s biggest backer is Microsoft, meaning that OpenAI is paying CoreWeave with money that is largely Microsoft’s to begin with.”
He described this as the rub, saying, “The AI economy is currently a closed loop and will stay that way until a broader swath of economic actors like big and medium-sized companies start spending real dollars on AI software and services. Until then, nearly all the money is coming from a few companies - chiefly Nvidia and Microsoft - which themselves depend on the goodwill of their public shareholders to keep underwriting it all.”
