Key Takeaways:
Microsoft Corp. has built a billion-dollar business selling OpenAI's most advanced AI models to Chinese technology giants, bypassing geopolitical barriers that have kept rivals like Anthropic and OpenAI itself out of the market.
ByteDance, the parent company of TikTok, has been Microsoft's largest AI customer in recent years, primarily using OpenAI models through the Azure cloud platform, according to people familiar with the matter. The Chinese social media and AI company is on track to spend more than $1 billion a year on Microsoft's AI and cloud services, the people said. Other Chinese technology firms including Ant Group, Meituan and Tencent Holdings have also become significant spenders on AI models via Azure.
"Azure's AI revenue was growing faster in China than in any other sales territory — about tripling in the fiscal year that ended in June 2025 and surging 400% the previous year," Judson Althoff, then Microsoft's chief commercial officer, told employees during an internal sales meeting in July 2025, according to a transcript reviewed by Bloomberg.
The China business remains a small fraction of Microsoft's overall revenue — about 1.5 percent of total sales in 2024, President Brad Smith testified before Congress. But the growth trajectory underscores a strategic divergence from US peers. Anthropic and OpenAI, citing fears of intellectual property theft and harmful uses, do not sell their models to companies in China. Microsoft, through a unique partnership with OpenAI, sets its own policies on selling models like the GPT series in the country.
How Microsoft's China AI Business Works
Microsoft operates multiple data center regions near Beijing and Shanghai through local partners, as required by Chinese regulations. However, under its agreements with OpenAI, the company does not host the models in server farms located in China due to concerns about intellectual property theft, according to people familiar with the arrangement. Instead, customers access the models over the internet from facilities in other countries, such as Singapore.
The company employs automated monitoring to prevent customers from using AI models to build competing products — a process known as "distillation" that has drawn complaints from OpenAI. At times, OpenAI has privately expressed concern to Microsoft that it isn't doing enough to prevent Chinese companies from copying its models, according to people familiar with the discussions. In China, Microsoft only sells AI models to established companies, not individual developers, in keeping with local regulations.
The Chinese companies named in this story all train their own AI models. ByteDance offers a widely used AI chatbot in China called Doubao. An Ant Group spokesperson said the company independently develops its own AI models and that its core products do not rely on external models. Much of the spending by ByteDance, Meituan and Tencent goes toward supporting expansion outside of China, according to people familiar with their businesses.
What This Means for Microsoft's AI Monetization Story
The China AI business adds a previously under-appreciated revenue stream to Microsoft's AI monetization narrative. The company reported that its AI business surpassed a $37 billion annual revenue run rate in its fiscal third quarter, up 123 percent from a year earlier. Azure and other cloud services revenue jumped 40 percent on AI workloads, contributing to Intelligent Cloud revenue of $34.7 billion, up 30 percent.
Microsoft has committed $190 billion in capital expenditure for 2026, mostly for data centers and AI infrastructure. The China business, while small in relative terms, demonstrates that Microsoft can monetize AI across geopolitical boundaries in ways competitors cannot. The company's unique position as OpenAI's exclusive cloud partner gives it distribution rights that rivals lack — a structural advantage that could prove increasingly valuable as Chinese enterprises seek access to frontier AI models.
Microsoft shares have fallen about 19 percent over the past year, pressured by concerns about AI spending and margin uncertainty. The stock trades at 25 times forward earnings, slightly below the sector median of 26, according to Barchart data. Wall Street remains broadly bullish, with a consensus "Strong Buy" rating and an average price target of $554.28, implying roughly 40 percent upside from current levels.
This article is for informational purposes only and does not constitute investment advice.
