OpenAI’s unveiling of the $500 billion Stargate project at the White House, backed by partners SoftBank and Oracle and endorsed by President Trump, is set to redefine the artificial intelligence (AI) sector.
While Microsoft remains an integral partner, Stargate introduces significant shifts in the dynamics between the two organizations, signaling OpenAI’s growing independence from its primary benefactor.
The project is also set to reshape the global AI race, with implications for Microsoft’s long-standing dominance in cloud infrastructure for AI workloads.
The Stargate initiative represents a massive push to develop AI infrastructure in the United States, with an initial $100 billion allocated to building data centers, primarily in Texas. Over four years, the total investment could reach $500 billion.
While Microsoft is listed as a technical partner to the venture, OpenAI’s partnerships with SoftBank and Oracle indicate its desire for operational and infrastructural independence.
Speaking to CNBC’s Squawk Box, Microsoft CEO Satya Nadella addressed these developments, stating, “OpenAI APIs are exclusive to Azure going forward even, so nothing changes there… OpenAI has committed to Azure in a very significant way.”
However, Stargate suggests a recalibration of this exclusivity, introducing a clause that allows OpenAI to source compute resources elsewhere if Microsoft cannot meet its requirements.
Microsoft’s Balancing Act in a Shifting Partnership
Since 2019, Microsoft has invested nearly $14 billion in OpenAI, establishing itself as the startup’s largest backer and enabling its meteoric rise with products like ChatGPT. In return, Microsoft has benefited from exclusive access to OpenAI’s APIs and intellectual property, embedding them into flagship offerings like Microsoft 365 Copilot.
However, OpenAI’s rapid growth and scaling needs have outpaced Azure’s capacity at times, leading to frustration on both sides.
Nadella acknowledged this tension, explaining that the partnership was recently adjusted to ensure flexibility for OpenAI: “More importantly, I think for us, one of the things that—in fact, Stargate is the answer. Sam wants to continue with the scaling laws to build out more compute in order for him to train more models. And we have a roof for him—so he comes to us first. If we meet those needs, then we clear it; if not, he can go to these other providers.”
The adjustments reflect OpenAI’s immense demand for computational resources. Scaling laws, a fundamental principle of AI development, describe how exponentially larger models require exponentially greater compute power but often yield disproportionate performance gains.
Nadella reinforced Microsoft’s position as a reliable partner, emphasizing, “All I know is I’m good for my $80 billion. I am going to spend $80 billion building out Azure. Customers can count on Microsoft with OpenAI models being there everywhere in the world, serving OpenAI models and other models.”
Scaling Laws and OpenAI’s Infrastructure Push
OpenAI’s focus on scaling its AI models has driven the need for initiatives like Stargate. The company projects annual compute expenses to reach $9.5 billion by 2026, making cost-effective and scalable infrastructure essential.
Stargate aims to address this need through large-scale data center investments, funded and managed by SoftBank and Oracle. While SoftBank CEO Masayoshi Son described Stargate as “a strategic capability to protect the national security of America and its allies,” the project also positions OpenAI as a more independent player in the AI sector.
At the same time, Microsoft’s investment in its Azure cloud infrastructure reflects its determination to remain a leader in AI workloads. Azure’s global reach, including underserved regions, aims to support AI applications that require low latency and local data residency.
Nadella elaborated on the strategic importance of Azure’s footprint, noting, “For AI specifically, latency and data sovereignty are key factors. Customers need local data residency and low latency for their AI applications to work seamlessly. That’s why we’re committed to expanding Azure’s footprint and ensuring OpenAI models and others are accessible everywhere.”
Navigating Competition and Diversification
Stargate’s launch has intensified competitive pressures on Microsoft. Rivals like Google, Anthropic, and Elon Musk’s xAI are advancing their AI capabilities, while OpenAI’s increasing leverage creates uncertainty for Microsoft.
Elon Musk, for instance, questioned Stargate’s feasibility, tweeting skepticism about SoftBank and Oracle’s ability to deliver on their financial commitments.
They don’t actually have the money
— Elon Musk (@elonmusk) January 22, 2025
wrong, as you surely know.
— Sam Altman (@sama) January 22, 2025
want to come visit the first site already under way?
this is great for the country. i realize what is great for the country isn't always what's optimal for your companies, but in your new role i hope you'll mostly put 🇺🇸 first.
Nadella, however, dismissed such doubts, affirming, “OpenAI has made a significant commitment to Azure. This was an adjustment to support their scaling needs while maintaining the integrity of our strategic value.”
Microsoft has also been diversifying its AI strategy. The company has invested in competitors such as Mistral AI and incorporated Anthropic’s Claude models into products like GitHub Copilot. Furthermore, Microsoft has developed its own AI systems, including Phi-4, a small language model (SLM) optimized for specific tasks.
While these initiatives reduce reliance on OpenAI, Nadella emphasized that Microsoft remains focused on leveraging its partnership with OpenAI: “I mean, just to be very clear, we have access to OpenAI IP, so we’re not going to do things twice. So we are very, very happy with the access we have to OpenAI. It’s just that we do have other models that we have built. The public model that we talk about is Phi, which is an SLM—or a small language model. Phi-4 is best in class for its parameter size, and we have other models too.”
Broader Implications of Stargate
Stargate’s alignment with Trump’s national AI strategy underscores its significance beyond the private sector. The project is expected to create hundreds of thousands of jobs and strengthen the United States’ position in the global AI race.
However, OpenAI’s growing autonomy, backed by political and financial support, complicates Microsoft’s role as its key partner.
The AGI (artificial general intelligence) clause, a cornerstone of the partnership, mandates that any AGI systems developed by OpenAI remain under the control of its nonprofit board to ensure ethical oversight.
Recent reports suggest that OpenAI may revisit this provision to align with its commercial goals, potentially limiting Microsoft’s access to future technologies.
Nadella acknowledged the broader context of competition and collaboration in AI development, stating, “Competition is great. The reason why this industry has moved forward so rapidly is because of competition. I think of it as a healthy dynamic where the innovation, the ecosystem, the partnerships, and the variety of models all create options for customers. At the end of the day, that’s what matters.”
As the Stargate project unfolds, Microsoft faces the dual challenge of sustaining its partnership with OpenAI while maintaining its leadership in AI infrastructure. With $500 billion on the line and the stakes higher than ever, the future of Microsoft’s role in the AI sector remains both promising and uncertain.