It seems that building and owning its own infrastructure is too expensive for OpenAI.
When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works .
This is a sensible idea for the startup, which is burning through cash and has reportedly missed internal revenue targets in recent months. But it has also caused chaos among its partners and put its reliability into question. According to the report, OpenAI has "in practice… abandoned the joint venture," choosing instead large bilateral deals with Oracle and more. One person involved with Stargate reportedly said the company had "sidelined first-party data centres," while OpenAI itself admitted that Stargate is merely an "umbrella for our compute strategy."
Stargate’s initial goal was to build 20 data centers , with the first project at Abilene, Texas, already operational. However, the three partners reportedly squabbled among themselves for months as they could not agree on who would have ultimate control of the planned data centers. In the end, SoftBank agreed to own and develop the Texas data center, while OpenAI would design and operate it on a long-term lease.
You may like Stargate AI data centers for OpenAI reportedly delayed by squabbles between partners OpenAI's massive Stargate data center canceled as firm can't reach terms with Oracle, operator struggles with reliability issues OpenAI couldn’t finance its data centers, so it took control of the hardware instead Other Stargate projects located in other areas have also been hit by uncertainties. The UK government signed a deal with OpenAI , among other partners, to build a data center in the UK, but the startup has put it on hold earlier this month. It cited “restrictive regulations” and “high energy costs” as the reason behind the move, but UK AI Minister Kanishka Narayan told the Financial Times that the “only thing that has changed [since] the moment of those commitments…has been the financing environment for OpenAI.”
It has also done the same for another Stargate project in Narvik, Norway, with Microsoft stepping up to take over the lease for the site. OpenAI will then lease compute capacity from Redmond, instead of getting it directly from Nscale, the British company that developed the site and also worked on the canceled UK project.
All these changes have got some partners “feeling let down and misled by OpenAI,” a person familiar with Microsoft’s decision said. Thankfully, the software giant has stepped in on some of the projects that the startup has supposedly abandoned. One source told the publication that money is not unlimited, no matter what Sam Altman might say, while another said that they prefer Microsoft over OpenAI as a tenant, as “they are more creditworthy.”
Even though OpenAI has made a name for itself in AI, the startup has not turned a profit since it was founded in 2015. Many institutions believe in its potential, though, with the firm securing $110 billion in its latest funding round — the biggest amount secured in Silicon Valley history and $10 billion more than what the company initially targeted. Still, some analysts estimate that it could run out of cash by mid-2027 with the massive amounts of money it’s been throwing around to secure more compute.
Get Tom's Hardware's best news and in-depth reviews, straight to your inbox.
Key considerations
- Investor positioning can change fast
- Volatility remains possible near catalysts
- Macro rates and liquidity can dominate flows
Reference reading
- https://www.tomshardware.com/tech-industry/artificial-intelligence/SPONSORED_LINK_URL
- https://www.tomshardware.com/tech-industry/artificial-intelligence/openai-has-effectively-abandoned-first-party-stargate-data-centers-in-favor-of-more-flexible-deals-company-now-prefers-to-lease-compute-and-says-stargate-is-an-umbrella-term#main
- https://www.tomshardware.com
- EXPO 1.2 only brings partial CUDIMM support due to lack of native IMC compatibility — Asus also working on updating older B650 and X670 boards with EXPO 1.2
- Rethinking AI TCO: Why Cost per Token Is the Only Metric That Matters
- Strength and Destiny Collide: ‘Samson: A Tyndalston Story’ Arrives in the Cloud
- Tag, You’re It: GeForce NOW Levels Up Game Discovery With Xbox Game Pass and Ubisoft+ Labels
- This £8.59 TP-Link gigabit Ethernet switch is the ultimate budget upgrade for lag-free gaming and streaming — ideal solution for ditching laggy Wi-Fi connection
Informational only. No financial advice. Do your own research.