OpenAI Is In A Far Worse Position Than I Thought
This is beyond reckless…
In a previous article, “OpenAI’s Insane Scaling Problem”, I made a mistake. Much to my accountant father’s shame, I confused Annualised Recurring Revenue with Annual Recurring Revenue. As such, I thought OpenAI had claimed to have made $20 billion in revenue last year. I argued that this amount simply wasn’t enough, as it would still mean rapidly growing losses for OpenAI, and that this figure suggests Microsoft is tossing OpenAI a bone, as Ed Zitron had previously found. After correcting this mistake, I discovered that the situation over in Altmanland is catastrophicallyworse than I believed. Let me explain.
The Correction
OpenAI’s $20 billion ARR figure originated from a blog by OpenAI CFO, Sarah Friar. She took the revenue OpenAI made in December 2025 and then multiplied it by 12 to ‘annualise’ it. This means she is claiming OpenAI made $1.66 billion in December 2025.
OpenAI had previously stated they made $5.5 billion in annualised revenue in December 2024 and $10 billion in annualised revenue in June 2025. If we assume linear revenue growth between these points (Dec 2024, June 2025, and Dec 2025), we can estimate that OpenAI’s total revenue for 2025 was actually $11.9 billion.
You can see how my mistake made OpenAI’s position look much better than it actually is.
The Microsoft Loophole Is Still There
Despite this, the revised figure still suggests that Microsoft is tossing OpenAI a bone.
In my earlier article, I mentioned that Ed Zitron found that OpenAI paid Microsoft $454.7 million in revenue sharing during the first half of 2025. As part of their partnership, OpenAI is expected to pay Microsoft 20% of its revenue. So that means OpenAI made $2.27 billion in revenue during the first half of 2025, which is $2 billion less than reported. In Q3, OpenAI paid Microsoft another $411.1 million, meaning they made $2 billion in revenue in Q3. We don’t yet have figures for OpenAI’s Q4 revenue sharing with Microsoft. However, we know OpenAI didn’t experience a dramatic increase in paid or unpaid users during this period, so we can reasonably estimate that the figures would continue to follow a similar upward trend and imply OpenAI had a revenue of under $4 billion for Q4. This would equate to an annual revenue of around $9 billion.
That is substantially less than the $11.9 billion annual revenue that OpenAI suggests. So, why is there a difference?
Well, Microsoft uses OpenAI’s models to run the likes of Copilot and Azure AI, and it pays OpenAI a 20% revenue share for this resale (according to Zitron). This revenue is almost certainly unaccounted for when calculating OpenAI’s 20% revenue share with Microsoft, so it could explain the difference.
As a result, we can estimate that Microsoft paid OpenAI approximately $2.9 billion in 2025, which would indicate that Microsoft generated roughly $14.5 billion from reselling OpenAI models in 2025. But did they really generate that much? I don’t think so.
Microsoft is severely struggling to sell these AIs. For example, we know that their Azure AI based on ChatGPT has sold so poorly that they have slashed sales quotas in half (read more here). Likewise, only 3.3% of Copilot users pay for the service. So, Microsoft has embedded it into existing subscriptions, such as Microsoft 365 (formerly Office), to force it upon its users. In fact, as a new customer in the UK, I cannot buy a 365 subscription without Copilot. Moreover, Microsoft’s 2025 revenue was only 15% higher than in 2024, and the vast majority of that increase came from their Azure cloud computing business, not from AI sales.
It looks to me like Microsoft might be classifying an arbitrary amount of its revenue from these existing subscriptions, which are now embedded with AI, as AI-driven revenue. This would inflate the amount of revenue they generate from AI and allow them to inconspicuously provide OpenAI with some extra cash (though, admittedly, less cash than I previously believed).
The Cash Problem
But why would OpenAI need extra cash? Quite simply, they need every cent they can get!
