Microsoft Feared Becoming "IBM" to OpenAI's Microsoft, Nadella Testimony Reveals

Microsoft CEO Satya Nadella worried as early as April 2022 that his company risked being eclipsed by OpenAI in the same way IBM was eventually displaced by Microsoft itself — a fear that shaped the software giant's strategy and has since been borne out in the market, according to testimony and discovery materials from the Musk v. Altman trial.

"I don't want to be IBM and OpenAI to be Microsoft," Nadella wrote in an email to executives that April, roughly three years after Microsoft wrote its first $1 billion check to OpenAI — seven months before the launch of ChatGPT.

The reference was to the early 1980s, when IBM agreed to distribute Microsoft's operating system on its computers, only to watch the software maker eventually capture the dominant share of market value. Nadella was determined to prevent a replay.

"It was becoming even more core and important that we had real agency at every layer of the stack," Nadella testified Monday at the trial, which is taking place in Oakland, California.

The testimony drew out the strategic logic behind Microsoft's deepening financial commitment to OpenAI. "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, referring to the initial partnership agreement.

A July 2022 email from Nadella, also surfaced in discovery, revealed a more optimistic calculus: "Better to be an investor and not even take all this execution risk!"

By June 2026, Microsoft will have spent over $100 billion on OpenAI, inclusive of investment commitments, infrastructure, and hosting costs, according to Michael Wetter, a Microsoft corporate development executive who testified Wednesday. Kevin Scott, Microsoft's chief technology officer, testified that the first supercomputer his company built with OpenAI took about six months to assemble, incorporating 10,000 graphics processing units that occupied a substantial portion of a data center.

Scott said he is "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."

Despite that infrastructure role, Microsoft is no longer the exclusive provider of OpenAI's technology to customers. OpenAI has since forged cloud partnerships with Google, Oracle, and, as of February, Amazon. In April, Microsoft and OpenAI revamped their agreement so that revenue share payments to Microsoft would be capped and OpenAI could serve "all of its products" to customers across any cloud provider.

Around 45% of Microsoft's commercial remaining performance obligations were tied to OpenAI at the end of 2025, filings show, underscoring how central the partnership remains to the company's cloud business even as its exclusivity has eroded.

OpenAI's valuation has since reached $850 billion, while Microsoft's stock is down 16% this year — a period in which its major cloud peers are all trading higher.

Microsoft has been working to reduce its strategic exposure. By January 2024, Nadella was characterizing AI models as becoming "more of a commodity." Two months later, the company hired Mustafa Suleiman, a co-founder of DeepMind, and named him CEO of a new Microsoft AI unit overseeing Bing and other products. Suleiman has since been focused on internal model development as Microsoft restructured its Copilot leadership in March, tapping former Snap executive Jacob Andreou to run consumer and commercial Copilot experience.

Since 2024, Microsoft has openly acknowledged OpenAI as a competitor, while simultaneously expanding its AI model partnerships through Azure — including with Elon Musk's xAI.

The Musk v. Altman trial, centered on the evolution of OpenAI, has also served as an unexpected window into the pressures Microsoft faced as generative AI reshaped the competitive landscape it had long dominated.

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