Tuesday, July 16, 2024

Microsoft, OpenAI Partnership Not Out of EU Regulator’s Sights

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Key Takeaways

  • The European Union on Friday said it has determined that the relationship between Microsoft and OpenAI is not a merger, but also said it is monitoring big tech companies’ partnerships and effects on competition in artificial intelligence (AI).
  • The European Commission said it requested additional information from Microsoft and OpenAI about an exclusive cloud agreement between the companies, and sent similar requests to Alphabet’s Google and Samsung about their own relationship.
  • Regulators in the EU, the U.S., and the U.K. have raised concerns about the effects of major AI partnerships on competition, leaving some investors worried that regulatory action could slow AI-fueled gains.

While the European Union (EU) has determined that the relationship between Microsoft (MSFT) and OpenAI is not considered a merger, the artificial intelligence (AI) superpowers are not in the clear yet.

The European Commission on Friday said that it’s monitoring big technology companies’ AI partnerships and their effects on competition, naming Microsoft and OpenAI, as well as Google parent Alphabet (GOOGL) and Samsung.

EU Requests Info on Exclusive Cloud Agreement Between Microsoft and OpenAI

The EU said it was sending requests for information on the agreement between Microsoft and OpenAI, with a focus on exclusivity between the companies. Microsoft Azure is the exclusive cloud provider for OpenAI as part of the pair’s multiyear, multibillion-dollar agreement.

The EU’s competition chief, Margrethe Vestager, on Friday confirmed that the European Commission had determined the relationship between Microsoft and OpenAI was not considered an acquisition under the EU Merger Regulation, adding that while regulators were “closing this chapter,” the “story is not over.”

She said the EU “will keep monitoring the relationships between all the key players in this fast-moving sector, including Microsoft and OpenAI,” to “continue to enforce our rules in both antitrust and merger control.”

Google-Samsung Arrangement Under Scrutiny

Vestager said that the EU has “a number of other preliminary antitrust investigations ongoing into various practices in AI-related markets,” which include Microsoft, OpenAI, Google, and Samsung, as players of interest.

She explained that some of Google’s AI technology is integrated into Samsung devices through an agreement between the companies, which the EU said could limit competition between AI model developers in a market dominated by tech giants.

Could Regulation Slow Big Tech’s AI-Fueled Growth?

The EU is not alone in considering the impact on competition of AI-focused partnerships between large tech companies, with Vestager nodding to ongoing investigations into AI partnerships underway by government regulators in the U.S. and the U.K.

The investigations have raised some concerns that regulatory action could force Microsoft and OpenAI, a pair that has established themselves as early AI leaders, to weaken ties.

Any regulation affecting Microsoft and OpenAI is likely to have an impact on other AI partnerships involving big tech companies like Google and Amazon (AMZN), That could leave investors wondering about the effects on AI-fueled gains, especially as big tech companies increase AI-related spending.

Shares of Microsoft and Google parent Alphabet both fell more than 1% on Friday. Those stocks have gained roughly 20% and 31% year-to-date, respectively.

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