To help it meet its massive computing demands for training and deploying AI models, OpenAI is looking into a surprising partnership with Google Cloud to use its services. It was widely seen that OpenAI was Google’s biggest threat, but this deal puts an end to the idea that the pair are purely competing.
The two companies haven’t made any public announcement about the deal but a source speaking to Reuters claimed that talks had been ongoing for a few months before a deal was finalized in May. Notably, such a deal would see OpenAI expand its compute sources beyond Microsoft Azure.
Microsoft had arrangements in place with OpenAI since 2019 that gave it the exclusive right to build new computing infrastructure for the startup. This limitation was loosened earlier this year with the announcement of Project Stargate. OpenAI is now allowed to look elsewhere for compute if Microsoft is unable to meet the demand.
A win for Google Cloud, a challenge for Google's AI strategy
The deal will see Google Cloud supply computing capacity for OpenAI’s AI model training and inference. This is a big win for Google’s Cloud unit because OpenAI is a massive name in AI and it lends credence to Google’s cloud offering. It also justifies Google Cloud’s expansion of its Tensor Processing Units (TPUs) for external use.
On the back of the news, Alphabet’s stock price rose 2.1%, while Microsoft’s sank 0.6%, showing investors think it’s a good move for Google too. While many end users don’t interact with Google Cloud the same way they do with something like Android or Chrome, Cloud is actually a huge part of Google’s business. In 2024, it comprised $43 billion (12%) of Alphabet’s total revenue. With OpenAI as a customer, this figure could rise even more given the massive amounts of compute OpenAI needs.
By leveraging Google’s services, it will also give OpenAI access to the search giant’s Tensor Processing Units (TPUs). Unlike GPUs, these chips are specifically designed to handle the kinds of calculations that are most common in AI and machine learning, leading to greater efficiency. Google’s expansion of these chips to external customers has already helped it attract business from Anthropic and Safe Superintelligence.
While Google will happily take OpenAI’s money, it needs to tread carefully giving compute power to a rival, which will only make OpenAI more of a threat to Google’s search business. Specifically, it’ll need to manage how resources are allocated between Google’s own AI projects and its cloud customers.
Another issue is that Google has been struggling to keep up with the overall demand for cloud computing, even with its own TPUs, according to its Chief Financial Officer in April. By giving access to OpenAI, it means even more pressure. Hopefully, this will be short lived as companies compete to build out capacity to attract customers.
OpenAI's push for compute independence
Back in 2019 when Microsoft became OpenAI’s exclusive cloud partner in exchange for $1 billion, the AI landscape was much different. End users wouldn’t have access to ChatGPT for another 3 years and the rate of development of new models was less ferocious than it is today.
As OpenAI’s compute needs evolve, its relationship with Microsoft has had to evolve too, including this deal with Google and the Stargate infrastructure program. Reuters said that OpenAI’s annualized run rate (the amount they’ll earn in one year at its current pace) had surged to $10 billion, which highlights its explosive growth and need for more resources than Microsoft alone can offer.
To make itself more independent, OpenAI has also signed deals worth billions of dollars with CoreWeave, another cloud compute provider, and it is nearing the finalization of the design of its first in-house chip, which could reduce its dependency on external hardware providers altogether.
Source: Reuters
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