Microsoft: A Key Player in OpenAI's AI Ecosystem
Microsoft has made significant investments in OpenAI, a company that has revolutionized the AI landscape with its groundbreaking models. This partnership has not only bolstered Microsoft’s enterprise AI business but also positioned it as a key player in the evolving tech industry.
Investment and Strategic Partnership
Microsoft has invested $13 billion in OpenAI, which gives the software giant access to the company's advanced models. This collaboration has been instrumental in driving demand for Microsoft Azure and its Copilot AI assistant. As part of their April agreement, Microsoft will remain OpenAI's primary cloud partner, with royalty-free access to OpenAI's frontier models through 2032. This partnership has already proven to be a game-changer for Microsoft, contributing to an 18% year-over-year revenue growth in the recent quarter.
The AI business alone reached $37 billion on an annualized basis, more than doubling year over year. Microsoft offers multiple models in its Foundry platform (formerly Azure AI Foundry), including Anthropic's Claude and ChatGPT, which are seeing massive adoption in Foundry. The number of customers using these models doubled over the year-ago quarter, making Microsoft a solid stock to benefit from demand for OpenAI's models, particularly on the enterprise side.
Nvidia: Powering OpenAI's Next-Generation Models
Nvidia is set to deploy over 10 gigawatts of computing systems to OpenAI starting this year. This move is aimed at helping OpenAI train and run its next-generation models to achieve superintelligence. As part of the deal, Nvidia intends to invest up to $100 billion in OpenAI as its products are deployed. The first phase of deployment is set for the second half of this year when Nvidia launches its next-generation Vera Rubin chips.
Strategic Business Approach
Nvidia's business strategy revolves around partnering with as many AI companies as possible to accelerate the adoption of its graphics processing units (GPUs) and other products. This deal with one of the leading AI companies solidifies Nvidia's standing in the AI infrastructure supply chain. Demand for Nvidia's data center GPUs remains incredibly strong, with a reported 85% year-over-year increase in revenue last quarter, reaching a record $82 billion.
Nvidia's Blackwell GB300 chips are the benchmark for large AI workloads and have been widely deployed by the leading cloud service providers, including Microsoft. Its upcoming Vera Rubin chips will be another major leap in performance, designed for advanced reasoning for agentic AI. The new chips are expected to start volume production in the third quarter. Analysts expect Nvidia's earnings to grow at an annualized rate of 45% over the coming years. Despite these catalysts, investors can buy Nvidia stock at a forward earnings multiple of 16 on next year's earnings estimate, which is a steal.
Oracle: Winning Big Deals in Cloud Infrastructure
Oracle is winning big deals from leading AI companies, including OpenAI, for cloud infrastructure. It also offers all the leading AI models, including ChatGPT, to its cloud customers, which is boosting demand. Oracle's latest quarterly results showed a 21% year-over-year increase in revenue, reaching $19.2 billion. The cloud infrastructure business was the standout, with revenue growing 93% year over year to $5.8 billion.
Expanding Contracts and Financial Strength
Oracle has signed large cloud deals with OpenAI, Meta Platforms, xAI, and other AI leaders, creating a massive contracted revenue backlog. Remaining performance obligations hit $638 billion last quarter, up 363% year over year. This is the riskiest stock of the three, as Oracle has needed to issue debt to finance the build-out of additional data centers to fulfill its backlog. However, its cash from operations is soaring, reaching $32 billion on a trailing-12-month basis.
Because of these growing cash flows, management said it won't need to issue any additional debt financing for the remainder of calendar 2026. Looking ahead to next year, management expects revenue growth to accelerate to over 34% as it fulfills its backlog. This makes the stock's recent dip a compelling buying opportunity. The stock trades at a forward earnings multiple of 17 times next year's earnings estimate, which may undervalue its future growth.
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