Microsoft took a $3.1 billion hit to its net income in the first quarter due to the software company’s hefty investment in OpenAI.

In its earnings report on Wednesday, Microsoft said the drop in profit reflected an “equity method investment,” resulting in a 41-cent decline in earnings per share. Net income still rose to $27.7 billion, or $3.72 per share, from $24.67 billion, or $3.30 per share, a year ago.

Since first backing OpenAI in 2019, Microsoft has committed to invest $13 billion in the company, with $11.6 billion already funded as of the end of September, according to a filing.

The announcement comes a day after OpenAI announced that it completed a recapitalization, cementing its structure as a nonprofit with a controlling stake in its for-profit business. The nonprofit, now called the OpenAI Foundation, holds an equity stake worth about $130 billion in its for-profit arm.

Under the new structure, the OpenAI Foundation will hold a 26% stake in the for-profit, with 47% held by current and former employees and investors.

Microsoft now holds an investment in the public benefit corporation that’s valued at $135 billion, or roughly 27% of the company on an as-converted diluted basis.

Microsoft said that under the agreement, “OpenAI has contracted to purchase an incremental $250 billion of Azure services,” and that Microsoft will no longer have the right of first refusal as a compute provider.

On Wednesday’s earnings call, Microsoft CEO Satya Nadella called the relationship “one of the most successful partnerships and investments our industry has even seen,” adding that “we continue to benefit mutually from each other’s growth across multiple dimensions.”

While Microsoft and OpenAI have been partners for over half a decade, long preceding the launch of ChatGPT in late 2022, the companies are increasingly competing in various parts of the AI market.

Over a year ago, Microsoft added OpenAI to the list of competitors in the company’s latest annual report, a roster that has included megacap peers Amazon, Apple, Google and Meta.

In that filing, Microsoft identified OpenAI, the creator of the ChatGPT chatbot, as a competitor in AI offerings and in search and news advertising. Just ahead of that disclosure, OpenAI announced a prototype of a search engine called SearchGPT.

Microsoft has largely relied on OpenAI’s models to power AI features in its key products. But in August, Microsoft said that it had begun publicly testing a homegrown AI model that could lead to enhancements to its Copilot assistant for consumers.

Microsoft reported better-than-expected earnings and profit on Wednesday. Its big growth driver remains the Azure cloud, which saw 40% revenue expansion, topping estimates.

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