Microsoft and OpenAI Agreement: Long-Term Growth Expectations

UBS stated that it viewed the revised agreement between Microsoft and OpenAI positively, and expressed that this $250 billion commitment provides greater visibility for future Azure cloud revenues. It also emphasized that Microsoft has re-confirmed its central role in the generative artificial intelligence ecosystem.

Analysts indicated that Microsoft's commitment is expected to spread over the next seven to eight years, generating approximately $30 billion to $35 billion annually. This situation is anticipated to increase long-term cloud growth forecasts. The agreement extends Microsoft's intellectual property and hosting rights over OpenAI models until 2032, while showing that the API hosting exclusivity is largely maintained.

UBS noted that this agreement removes uncertainties in the partnership between the companies and clarifies commercial terms, allowing Microsoft to continue being OpenAI's primary computing provider. It also mentioned that this arrangement holds the potential to validate similar artificial intelligence infrastructure exposure for competitors.

They added that some of the agreement's conditions fell short of expectations. Notably, there are uncertainties regarding the "AGI clause", which could affect hosting rights if OpenAI announces artificial general intelligence. However, UBS downplayed this risk, stating that both Microsoft and OpenAI executives have questioned the practical meaning of this term. Ultimately, the 27% stake is slightly below predictions, while details regarding revenue sharing remain undisclosed.

UBS maintained a price target of $650 for the stock and kept its positive outlook, emphasizing that this announcement has increased confidence in Microsoft's artificial intelligence roadmap and long-term Azure growth trends. The brokerage defined Microsoft's value as 54 times the projected free cash flow for 2027, stating that this premium is justified by sustainable cloud and artificial intelligence growth potential.