Are Google and OpenAI burying the hatchet?

In a surprising development in the AI arms race, it seems as though rival tech giants Google and OpenAI are exchanging competition for collaboration. According to anonymous sources cited by Reuters, OpenAI will be utilizing Alphabet’s Google Cloud service in an attempt to keep up with its growing computing needs. The deal — finalized in May but reported to have been in works for several months prior — is an unexpected development according to the newswire, considering OpenAI has been touted as Google’s biggest threat.

Up goes Google, down goes Microsoft. Following the announcement on Tuesday, Alphabet’s stock increased 2.1%, with Microsoft’s dropping 0.6%. The latter’s cloud computing platform, Microsoft Azure, had been OpenAI’s exclusive cloud computing provider — and one of its staunchest supporters and investors — from 2016 up until January 2025, when OpenAI partnered with Oracle and Softbank as part of US President Trump’s Stargate project. Ars Technica reports that OpenAI had been seeking partnerships away from Microsoft as early as October 2024, noting Microsoft’s inability to supply the AI data center services OpenAI needed.

The news follows OpenAI’s announcement that its annualized revenue run rate rose to USD 10 bn, up from USD 5.5 bn in 4Q 2024. With ChatGPT’s rising popularity, the deal emphasizes OpenAI’s rigorous growth plans, and comes not a second too soon for the emerging AI superpower, who seem to have been dealing with a few power outages as of late — though not for much longer, we would presume.

Google’s Hail Mary. Google may be the one providing OpenAI with power, but could this partnership be Google’s attempt to stay ahead in a race in which they are no longer effectively competing? In contrast to OpenAI’s rise, Google has found itself falling from grace in its attempt to get a leg up on AI — from its flailing AI Mode search to weekly PR nightmares and frequent attempts to decrease headcount, it hasn’t been a good year for the California-based tech giant. But this new deal could just be the lifeboat Google has been searching for. Google Cloud generated USD 43 bn in sales in 2024 — 12% of Alphabet’s total revenue —, and with OpenAI fresh on the client list, joining Apple, Alphabet may have just found its way out of the mud, likely attracting more AI startups in the process.

But can Google walk the walk? OpenAI’s departure from Microsoft was due to the latter’s inability to supply enough power consistent with OpenAI’s growth, but Google might be facing the same problem — 1Q 2025 saw Google Cloud unable to meet customer demand. While the deal might be mutually beneficial for the time being, the Alphabet subsidiary could be feeding a hand that will eventually bite back. Reuters notes that selling computing power both reduces Google’s supply of computer chips, all whilst propping up rivals, begging the question: Who will Google prioritize: itself, or its clients? It’s too soon to tell, but we expect the company that has implemented a “if you don’t like it, leave” and all-or-nothing policy for publishers, clients, and users as of late will be putting its ego first.