OpenAI is reportedly partnering with Alphabet's Google Cloud service to address its escalating computing capacity needs, a significant move given their prominent competitive positions in the artificial intelligence sector. Sources indicate the deal, which had been under discussion for several months, was finalised in May.

This collaboration underscores the immense computational power required to train and deploy advanced AI models, a factor that is actively reshaping competitive dynamics within the AI industry. It also marks a key step in OpenAI's strategy to diversify its compute sources beyond its major supporter, Microsoft, complementing other initiatives such as its high-profile Stargate data centre project.

The agreement is considered a notable win for Google's cloud unit, which is set to supply additional computing capacity to bolster OpenAI's existing infrastructure for training and running its AI models. This development occurs as OpenAI’s ChatGPT continues to pose the most significant challenge in years to Google's dominant search business, though Google executives have recently suggested that the AI race may not necessarily result in a winner-take-all scenario.

OpenAI has demonstrated substantial growth, with its annualized revenue run rate surging to $10 billion as of June, reflecting the booming adoption of AI. To manage its increasing compute demands, OpenAI has also pursued other strategic partnerships, including the $500 billion Stargate infrastructure program with SoftBank and Oracle, and has signed deals worth billions with CoreWeave for more compute. Furthermore, OpenAI is reportedly on track this year to finalize the design of its first in-house chip, a move aimed at reducing its dependency on external hardware providers.

The partnership with Google represents one of several maneuvers by OpenAI to lessen its reliance on Microsoft, whose Azure cloud service had served as the ChatGPT maker's exclusive data center infrastructure provider until January. Sources suggest that previous discussions between Google and OpenAI regarding an arrangement were blocked due to OpenAI's lock-in with Microsoft. Concurrently, Microsoft and OpenAI are reportedly in negotiations to revise the terms of their multibillion-dollar investment, including the future equity stake Microsoft will hold in OpenAI.

For Google, this deal aligns with its broader strategy of expanding the external availability of its in-house chip technology, known as Tensor Processing Units (TPUs), which were historically reserved primarily for internal use.

Industry analysts, such as those from Scotiabank, have described the OpenAI-Google Cloud development as “somewhat surprising.” While they view it as a significant win for Google’s Cloud unit and an indicator of growth opportunities, they also maintain a degree of caution concerning the ongoing competition from ChatGPT and its potential to be an incrementally larger threat to Google’s search dominance. The willingness of these two major competitors to collaborate highlights the critical and massive computing demands inherent in the AI field.

OpenAI, Google, and Microsoft have all declined to comment on the reported deal and partnership.