In just over three years, OpenAI has gone from a relatively unknown to a tech industry giant worth as much as $830 billion, based on its current fund-raising round. It's currently seeking $100 billion in fresh capital, and it's going to need it. The developer of large language models has made huge commitments to several major partners for cloud computing resources.
Two of OpenAI's biggest partners are Microsoft (MSFT +0.70%) and Oracle (ORCL +0.65%).
Microsoft has a long history with OpenAI, having invested in the company as early as 2019, well ahead of the release of ChatGPT. It now owns a 27% equity stake in the business and has contracted $250 billion in commitments from OpenAI for its cloud computing platform Azure.
But OpenAI, hungry for computational resources, has signed several deals with Microsoft's competition, including Oracle. The two announced a huge $300 billion commitment from OpenAI spanning five years for Oracle's cloud infrastructure business.
There's no doubt that both Microsoft and Oracle have a lot riding on the success of OpenAI. But which stock should investors buy right now?
Image source: Getty Images.
How is OpenAI paying for all of this?
OpenAI plans to spend over half a trillion dollars with Microsoft and Oracle alone. It has another $800 billion or so in commitments with various other cloud and chip providers as well.
Meanwhile, the company generated revenue of $4.3 billion through the first six months of 2025. CEO Sam Altman says it reached a $20 billion annualized run rate last quarter.
It doesn't take advanced artificial intelligence to determine that a company generating around $20 billion per year will need to cover hundreds of billions per year in spending with some outside funding. In many cases, OpenAI is able to negotiate a form of vendor financing using things like equity and stock warrants.
Many have criticized the circular deals that help OpenAI pay for the infrastructure it needs, but if it's ultimately successful in growing the business, it could work out well for both OpenAI and its partners. On the other hand, it introduces immense risk into the equation. If OpenAI stumbles, it could bring down the entire industry.
The $550 billion in combined commitments at Microsoft and Oracle are not guaranteed. And that's an important caveat to consider when evaluating both companies' stocks.
How are Microsoft and Oracle paying for all of this?
Microsoft and Oracle are both responsible for building the infrastructure to rent to OpenAI. That means huge capital expenditures (capex) to set up new data centers and outfit them with graphics processing units (GPUs), networking equipment, and cooling systems.
Microsoft's capex totaled $34.9 billion during its first quarter ($11.1 billion of which were finance leases). Management expects the growth in spending to accelerate this year as it works to meet the huge demand already in its backlog, including OpenAI's commitment. Oracle, meanwhile, saw its capex balloon to $12 billion last quarter, tripling year over year.
NASDAQ: MSFT
Key Data Points
Importantly, Microsoft is more than capable of financing its AI data center construction with its own operations. Despite the substantial spending, the company generated $25 billion in free cash flow in its most recent quarter. That's thanks to its high-margin software business and the huge scale Azure already has.
Oracle, on the other hand, burned $10 billion of cash last quarter as it ramped up the infrastructure expansion. That was funded by raising long-term debt. Importantly, the company will have to continue spending heavily in the near term, but the payoff on that spending won't come until down the road when data centers are up and running and OpenAI is paying for them.
With interest on debt and big depreciation expenses set to hit the company, Oracle will likely see a significant decrease in its net profit margins. But if it generates $60 billion per year in revenue from OpenAI alone, the margins are a secondary concern.
NYSE: ORCL
Key Data Points
Still, Oracle's approach doubles the risk inherent in partnering with OpenAI. Further increasing the risk is the immense customer concentration of Oracle in OpenAI. If the latter pulls back in spending or collapses, Oracle will be left with a lot of computing capacity it paid for with nobody to pick up the slack from OpenAI.
As such, investors shouldn't be willing to pay a premium for Oracle. With its forward price-to-earnings ratio (P/E) of 28, it trades at a premium valuation to the overall S&P 500.
For just a little bit more -- 29.5 times forward earnings -- investors can pick up shares of Microsoft. With its more-diversified customer base and strong operations from its software business funding its AI data center expansion, it looks like the much better investment right now.
