Tension seems to be synonymous with Microsoft and OpenAI's multi-billion-dollar partnership. It’s hard to gauge the current state of the relationship between the two companies, especially after they renewed their partnership late last year under a definitive agreement.
More trouble seems to be brewing for the once-best tech bromance, as the Financial Times reports that Microsoft may be considering legal action against OpenAI and Amazon over a $50 billion deal, alleging it violates a critical clause granting Microsoft exclusive rights as the AI giant’s cloud provider through Azure.
Microsoft’s chief point of contention with the $50 billion deal is whether Amazon Web Services (AWS) can serve as the exclusive third-party cloud provider for OpenAI’s Frontier product without breaching its existing agreement.
For context, Microsoft's new definitive agreement with OpenAI dictates that:
"OpenAI can now jointly develop some products with third parties. API products developed with third parties will be exclusive to Azure. Non-API products may be served on any cloud provider."
Microsoft’s FY26 Q2 earnings report revealed that Azure remains the company’s largest division, surging 39%. Yet despite the impressive growth on paper, market analysts say investors are growing increasingly wary of Satya Nadella’s strategy around Azure and artificial intelligence — and many found the results less-than-impressive.
Still, Microsoft's arrangement with OpenAI is undeniably lucrative, with the former generating billions in recurring revenue. The ChatGPT maker pays for massive compute and storage capacity to run its advanced AI models through Azure.
In January, Microsoft revealed that it is facing immense capacity constraints, which have primarily contributed to a backlog in commercial bookings. For context, the backlog in its cloud computing business has surged 110% year over year to $625 billion. The tech giant further disclosed that OpenAI accounts for approximately 45% of the highlighted commitments.
💬 Will Microsoft sue OpenAI?
It's complicated, but it seems highly unlikely.
According to people with knowledge about the matter, Microsoft and OpenAI are currently in talks in an attempt to resolve the dispute or even reach a common ground before the matter gets out of hand, forcing them to move to court:
“We know our contract. If Amazon and OpenAI want to take a bet on the creativity of their contractual lawyers, I would back us, not them.”
Interestingly, OpenAI reportedly believes that its deal with Amazon doesn't breach the terms of its agreement with Microsoft.
However, Microsoft is unlikely to take the matter to court, as doing so would invite heightened regulatory scrutiny. The company already faces investigations in the US, UK, and EU over alleged anti-competitive licensing practices tied to Azure, leaving its plate full with ongoing probes.
Related: Microsoft reshuffles its Copilot AI leadership
It's highly likely that Microsoft and OpenAI could settle the matter out of court. Not forgetting, OpenAI is reportedly laying down the groundwork for what could be one of the largest IPOs in history, with a potential valuation of around $1 trillion. The ChatGPT maker could be getting ready to go public and even file with regulators in the second half of 2026, but it must match Microsoft's size today in four years.
“The last thing OpenAI needs is another court case right now,” indicated a person with close affiliations to Microsoft.
OpenAI has complained about Microsoft not meeting its cloud computing needs in the past. But CEO Sam Altman indicated that the company was no longer compute-constrained after announcing the $500 billion Stargate project. However, the AI firm walked away from the project after it was unable to find agreeable terms with Oracle.
Do you think Microsoft has a case here, or is this partnership simply too big to fail? Let us know what you think in the comments.
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