Microsoft has officially listed OpenAI as a competitor in its latest annual report, marking a significant shift in their relationship. Previously known for their close partnership, this new classification highlights the growing competition between the two tech giants.

Microsoft, which has invested around $13 billion in OpenAI, serves as the startup's exclusive cloud provider and incorporates its AI models into products for both commercial clients and consumers. However, with OpenAI's recent launch of SearchGPT—a new search engine prototype—Microsoft's competitive stance has become more pronounced.

The move comes amid a backdrop of notable changes: Microsoft CEO Satya Nadella was reportedly not briefed before OpenAI’s board ousted CEO Sam Altman in November, though Altman was swiftly reinstated. Microsoft later relinquished its non-voting board seat at OpenAI.

Further intensifying the competitive landscape, Nadella brought Mustafa Suleyman, a co-founder of DeepMind (acquired by Google in 2014), on board as CEO of a new unit, Microsoft AI. Suleyman’s move follows the recruitment of several Inflection AI employees, a startup he co-founded and led before joining Microsoft.

Despite these competitive elements, Nadella and Altman maintain a close working relationship, with Nadella praising Altman's relentless pursuit of innovation. The evolving dynamics between Microsoft and OpenAI reflect the increasingly competitive and complex nature of the AI industry.