They’re rivals in the cloud, and competitors for customers and talent. But Microsoft and Amazon are on the same page when it comes to Washington state’s housing crisis — literally, in the case of an op-ed Friday and full-page ad last Sunday in The Seattle Times.

The Seattle region “faces a housing emergency that threatens our state’s quality of life, health and economic competitiveness,” write Brad Smith, Microsoft’s vice chair and president, and David Zapolsky, Amazon’s chief global affairs and legal officer.

It was an unusual joint byline, to say the least, but it reflected the similar big-picture goals of their separate housing initiatives. 

Combined, the two companies have committed $1.6 billion to preserve and build more than 26,000 affordable homes in the region. But the executives say even that isn’t enough, framing the problem as a supply issue that requires building “more homes of all kinds.”

They’re backing several bills in the current legislative session, including SB 6026, which would allow residential development on commercial land like strip malls and big-box stores. They also praise Gov. Bob Ferguson’s proposed $225 million in bonds for the state Housing Trust Fund.

“Going forward, legislators must commit to a simple test: If a policy makes housing more costly or takes longer to build, don’t pass it. Consider an alternative,” they write. “Enact policies that pencil in today’s market, not aspirational measures that might work down the line.”

They warn that other states are moving faster to attract developers. “Capital is fluid,” they write. “Banks, investors and lenders are going where they can make predictable returns.”

The joint push comes after Microsoft released a report last week outlining lessons learned from its housing investments. Read our earlier coverage for more details.

This week on the GeekWire Podcast: Newly unsealed court documents reveal the behind-the-scenes history of Microsoft and OpenAI, including a surprise: Amazon Web Services was OpenAI’s original partner. We tell the story behind the story, explaining how it all came to light.

Plus, Microsoft CEO Satya Nadella debuts a new AI catchphrase at Davos, startup CEO Dave Clark stirs controversy with his “wildly productive weekend,” Elon Musk talks aliens, and the latest on Seattle-area physical AI startups, including Overland AI and AIM Intelligent Machines.

Subscribe to GeekWire in Apple Podcasts, Spotify, or wherever you listen.

With GeekWire co-founders John Cook and Todd Bishop; edited by Curt Milton.

The launch of the AI lab that would redefine Microsoft caught the tech giant by surprise.

“Did we get called to participate?” Satya Nadella wrote to his team on Dec. 12, 2015, hours after OpenAI announced its founding. “AWS seems to have sneaked in there.”

Nadella had been Microsoft CEO for less than two years. Azure, the company’s cloud platform, was five years old and chasing Amazon Web Services for market share. And now AWS had been listed as a donor in the “Introducing OpenAI” post. Microsoft wasn’t in the mix. 

In the internal message, which hasn’t been previously reported, Nadella wondered how the new AI nonprofit could remain truly “open” if it was tied only to Amazon’s cloud.

Within months, Microsoft was courting OpenAI. Within four years, it would invest $1 billion, adding more than $12 billion in subsequent rounds. Within a decade, the relationship would culminate in a $250 billion spending commitment for Microsoft’s cloud and a 27% equity stake in one of the most valuable startups in history.

New court filings offer an inside look at one of the most consequential relationships in tech. Previously undisclosed emails, messages, slide decks, reports, and deposition transcripts reveal how Microsoft pursued, rebuffed and backed OpenAI at various moments over the past decade, ultimately shaping the course of the lab that launched the generative AI era.

More broadly, they show how Nadella and Microsoft’s senior leadership team rally in a crisis, maneuver against rivals such as Google and Amazon, and talk about deals in private.

For this story, GeekWire dug through more than 200 documents, many of them made public Friday in Elon Musk’s ongoing suit accusing OpenAI and its CEO Sam Altman of abandoning the nonprofit mission. Microsoft is also a defendant. Musk, who was an OpenAI co-founder, is seeking up to $134 billion in damages. A jury trial is scheduled for this spring.

OpenAI has disputed Musk’s account of the company’s origins. In a blog post last week, the company said Musk agreed in 2017 that a for-profit structure was necessary, and that negotiations ended only when OpenAI refused to give him full control. 

The recently disclosed records show that Microsoft’s own leadership anticipated the possibility of such a dispute. In March 2018, after learning of OpenAI’s plans to launch a commercial arm, Microsoft CTO Kevin Scott sent Nadella and others an email offering his thoughts.

“I wonder if the big OpenAI donors are aware of these plans?” Scott wrote. “Ideologically, I can’t imagine that they funded an open effort to concentrate ML [machine learning] talent so that they could then go build a closed, for profit thing on its back.”

The latest round of documents, filed as exhibits in Musk’s lawsuit, represents a partial record selected to support his claims in the case. Microsoft declined to comment. 

Elon helps Microsoft win OpenAI from Amazon

Microsoft’s relationship with OpenAI has been one of its key strategic advantages in the cloud. But the behind-the-scenes emails make it clear that Amazon was actually there first.

According to an internal Microsoft slide deck from August 2016, included in recent filings, OpenAI was running its research on AWS as part of a deal that gave it $50 million in computing for $10 million in committed funds. The contract was up for renewal in September 2016. 

Microsoft wanted in. Nadella reached out to Altman, looking for a way to work together. 

In late August, the filings show, Altman emailed Musk about a new deal with Microsoft: “I have negotiated a $50 million compute donation from them over the next 3 years!” he wrote. “Do you have any reason not to like them, or care about us switching over from Amazon?” 

Musk, co-chair of OpenAI at the time, gave his blessing to the Microsoft deal in his unique way, starting with a swipe at Amazon founder Jeff Bezos: “I think Jeff is a bit of a tool and Satya is not, so I slightly prefer Microsoft, but I hate their marketing dept,” Musk wrote. 

He asked Altman what happened to Amazon.

Altman responded, “Amazon started really dicking us around on the T+C [terms and conditions], especially on marketing commits. … And their offering wasn’t that good technically anyway.”

Microsoft and OpenAI announced their partnership in November 2016 with a blog post highlighting their plans to “democratize artificial intelligence,” and noting that OpenAI would use Azure as its primary cloud platform going forward.

Internally, Microsoft saw multiple benefits. The August 2016 slide deck, titled “OpenAI on Azure Big Compute,” described it as a prime opportunity to flip a high-profile customer to Azure. 

The presentation also emphasized bigger goals: “thought leadership” in AI, a “halo effect” for Azure’s GPU launch, and the chance to recruit a “net-new audience” of developers and startups. It noted that OpenAI was a nonprofit “unconstrained by a need to generate financial return” — an organization whose research could burnish Microsoft’s reputation in AI.

But as the ambition grew, so did the bill.

‘Most impressive thing yet in the history of AI’

In June 2017, Musk spoke with Nadella directly to pitch a major expansion. OpenAI wanted to train AI systems to beat the best human players at competitive esports, Valve’s Dota 2. The computing requirements were massive: 10,000 servers equipped with the latest Nvidia GPUs.

“This would obviously be a major opportunity for Microsoft to promote Azure relative to other cloud systems,” Musk wrote in an email to OpenAI colleagues after the call.

Nadella said he’d talk about it internally with his Microsoft cloud team, according to the email. “Sounds like there is a good chance they will do it,” Musk wrote.

Two months later, Altman followed up with a formal pitch. “I think it will be the most impressive thing yet in the history of AI,” he wrote to Nadella that August.

Microsoft’s cloud executives ran the numbers and balked. In an August 2017 email thread, Microsoft executive Jason Zander told Nadella the deal would cost so much it “frankly makes it a non-starter.” The numbers are redacted from the public version of the email. 

“I do believe the pop from someone like Sam and Elon will help build momentum for Azure,” Zander wrote. “The scale is also a good forcing function for the fleet and we can drive scale into the supply chain. But I won’t take a complete bath to do it.”

Ultimately, Microsoft passed. OpenAI contracted with Google for the Dota 2 project instead.

‘A bucket of undifferentiated GPUs’

Microsoft’s broader relationship with OpenAI was starting to fray, as well. By January 2018, according to internal emails, Microsoft executive Brett Tanzer had told Altman that he was having a hard time finding internal sponsors at Microsoft for an expanded OpenAI deal. 

Altman started shopping for alternatives. Around that time, Tanzer noted in an email to Nadella and other senior executives that OpenAI’s people “have been up in the area recently across the lake” — a reference to Amazon’s Seattle headquarters.

The internal debate at Microsoft was blunt. 

Scott wrote that OpenAI was treating Microsoft “like a bucket of undifferentiated GPUs, which isn’t interesting for us at all.” Harry Shum, who led Microsoft’s AI research, said he’d visited OpenAI a year earlier and “was not able to see any immediate breakthrough in AGI.” 

Eric Horvitz, Microsoft’s chief scientist, chimed in to say he had tried a different approach. After a Skype call with OpenAI co-founder Greg Brockman, he pitched the idea of a collaboration focused on “extending human intellect with AI — versus beating humans.” 

The conversation was friendly, Horvitz wrote, but he didn’t sense much interest. He suspected OpenAI’s Dota work was “motivated by a need to show how AI can crush humans, as part of Elon Musk’s interest in demonstrating why we should all be concerned about the power of AI.”

Scott summed up the risk of walking away: OpenAI might “storm off to Amazon in a huff and shit-talk us and Azure on the way out.”

“They are building credibility in the AI community very fast,” the Microsoft CTO and Silicon Valley veteran wrote. “All things equal, I’d love to have them be a Microsoft and Azure net promoter. Not sure that alone is worth what they’re asking.”

But by the following year, Microsoft had found a reason to double down.

The first billion

In 2019, OpenAI restructured. The nonprofit would remain, but a new “capped profit” entity would sit beneath it — a hybrid that could raise capital from investors while limiting their returns. 

Microsoft agreed to invest $1 billion, with an option for a second billion, in exchange for exclusive cloud computing rights and a commercial license to OpenAI’s technology.

The companies announced the deal in July 2019 with a joint press release. “The creation of AGI will be the most important technological development in human history, with the potential to shape the trajectory of humanity,” Altman said. Nadella echoed that sentiment, emphasizing the companies’ ambition to “democratize AI” while keeping safety at the center.

So what changed for Microsoft between 2018 and 2019?

In a June 2019 email to Nadella and Bill Gates, previously disclosed in the Google antitrust case, Scott cited the search giant’s AI progress as one reason for Microsoft to invest in OpenAI. He “got very, very worried,” he explained, when he “dug in to try to understand where all of the capability gaps were between Google and us for model training.”

Nadella forwarded Scott’s email to Amy Hood, Microsoft’s CFO. “Very good email that explains why I want us to do this,” Nadella wrote, referring to the larger OpenAI investment, “and also why we will then ensure our infra folks execute.”

Gates wasn’t so sure. According to Nadella’s deposition testimony, the Microsoft co-founder was clear in “wanting us to just do our own” — arguing that the company should focus on building AI capabilities in-house rather than placing such a large bet on OpenAI.

Nadella explained that the decision to invest was eventually driven by him and Scott, who concluded that OpenAI’s specific research direction into transformers and large language models (the GPT class) was more promising than other approaches at the time.

Hood, meanwhile, offered some blunt commentary on OpenAI’s cap on profits — the centerpiece of its new structure, meant to limit investor returns and preserve the nonprofit’s mission. The caps were so high, she wrote, that they were almost meaningless.

“Given the cap is actually larger than 90% of public companies, I am not sure it is terribly constraining nor terribly altruistic but that is Sam’s call on his cap,” Hood wrote in a July 14, 2019, email to Nadella, Scott, and other executives. 

If OpenAI succeeded, she noted, the real money for Microsoft would come from Azure revenue — far exceeding any capped return on the investment itself.

But the deal gave Microsoft more than cloud revenue.

According to an internal OpenAI memo dated June 2019, Microsoft’s investment came with approval rights over “Major Decisions” — including changes to the company’s structure, distributions to partners, and any merger or dissolution.

Microsoft’s $1 billion made it the dominant investor. Under the partnership agreement, major decisions required approval from a majority of limited partners based on how much they had contributed. At 85% of the total, Microsoft had an effective veto, a position of power that would give the company a pivotal role in defining the future of the company.

‘The opposite of open’

In September 2020, Musk responded to reports that Microsoft had exclusively licensed OpenAI’s GPT-3. “This does seem like the opposite of open,” he tweeted. “OpenAI is essentially captured by Microsoft.”

Nadella seemed to take the criticism seriously. 

In an October 2020 meeting, according to internal notes cited in a recent court order, Microsoft executives discussed the perception that the company was “effectively owning” OpenAI, with Nadella saying they needed to give thought to Musk’s perspective.

In February 2021, as Microsoft and OpenAI negotiated a new investment, Altman emailed Microsoft’s team: “We want to do everything we can to make you all commercially successful and are happy to move significantly from the term sheet.” 

His preference, Altman told the Microsoft execs, was “to make you all a bunch of money as quickly as we can and for you to be enthusiastic about making this additional investment soon.”

They closed the deal in March 2021, for up to $2 billion. This was not disclosed publicly until January 2023, when Microsoft revealed it as part of a larger investment announcement.

By 2022, the pressure to commercialize was explicit. 

According to a transcript of her deposition, Mira Murati, then OpenAI’s vice president of applied AI and partnerships, had written in contemporaneous notes that the most-cited goal inside the company that year was a $100 million revenue target. Altman had told employees that Nadella and Scott said this needed to be hit to justify the next investment, as much as $10 billion.

Murati testified that Altman told her “it was important to achieve this goal to receive Microsoft’s continued investments.” OpenAI responded by expanding its go-to-market team and building out its enterprise business.

Then everything changed.

The ChatGPT moment

On Nov. 30, 2022, OpenAI announced ChatGPT. The chatbot became the fastest-growing consumer application in history, reaching 100 million users within two months. It was the moment that turned OpenAI from an AI research lab into a household name.

Microsoft’s bet was suddenly looking very different.

OpenAI’s board learned about the launch on Twitter. According to deposition testimony, board members Helen Toner and Tasha McCauley received no advance notice and discovered ChatGPT by seeing screenshots on social media. 

McCauley described the fact that a “major release” could happen without the board knowing as “extremely concerning.” Toner testified that she wasn’t surprised — she was “used to the board not being very informed” — but believed it demonstrated that the company’s processes for decisions with “material impact on the mission were inadequate.”

Altman, according to one filing, characterized the release as a “research preview” using existing technology. He said the board “had been talking for months” about building a chat product, but acknowledged that he probably did not send the board an email about the specific release.

As its biggest investor, Microsoft pushed OpenAI to monetize the product’s success.

In mid-January 2023, Nadella texted Altman asking when they planned to activate a paid subscription.

Altman said they were “hoping to be ready by end of jan, but we can be flexible beyond that. the only real reason for rushing it is we are just so out of capacity and delivering a bad user experience.”

He asked Nadella for his input: “any preference on when we do it?”

“Overall getting this in place sooner is best,” the Microsoft CEO responded, in part.

Two weeks later, Nadella checked in again: “Btw …how many subs have you guys added to chatGPT?”

Altman’s answer revealed what they were dealing with. OpenAI had 6 million daily active users — their capacity limit — and had turned away 50 million people who tried to sign up. “Had to delay charging due to legal issues,” he wrote, “but it should go out this coming week.”

ChatGPT Plus launched on Feb. 1, 2023, at $20 a month.

A week earlier, Microsoft made its landmark $10 billion investment in OpenAI. The companies had begun negotiating the previous summer, when OpenAI was still building ChatGPT. The product’s viral success validated Microsoft’s bet and foreshadowed a new era of demand for its cloud platform.

Ten months later, it nearly collapsed.

‘Run over by a truck’

On Friday afternoon, Nov. 17, 2023, OpenAI’s nonprofit board fired Altman as CEO, issuing a terse statement that he had not been “consistently candid in his communications with the board.” Greg Brockman, the company’s president and cofounder, was removed from the board the same day. He quit hours later.

Microsoft, OpenAI’s largest investor, was not consulted. Murati, then OpenAI’s chief technology officer and the board’s choice for interim CEO, called Nadella and Kevin Scott to warn them just 10 to 15 minutes before Altman himself was told.

“Mira sounded like she had been run over by a truck as she tells me,” Scott wrote in an email to colleagues that weekend.

The board — Ilya Sutskever, Tasha McCauley, Helen Toner, and Adam D’Angelo — had informed Murati the night before. They had given her less than 24 hours to prepare.

At noon Pacific time, the board delivered the news to Altman. The blog post went live immediately. An all-hands meeting followed at 2 p.m. By Friday night, Brockman had resigned. So had Jakub Pachocki, OpenAI’s head of research, along with a handful of other researchers. 

A “whole horde” of employees, Scott wrote, had reached out to Altman and Brockman “expressing loyalty to them, and saying they will resign.”

Microsoft didn’t have a seat on the board. But text messages between Nadella and Altman, revealed in the latest filings, show just how influential it was in the ultimate outcome.

At 7:42 a.m. Pacific on Saturday, Nov. 18, Nadella texted Altman asking if he was free to talk. Altman replied that he was on a board call.

“Good,” Nadella wrote. “Call when done. I have one idea.”

That evening, at 8:25 p.m., Nadella followed up with a detailed message from Brad Smith, Microsoft’s president and top lawyer. In a matter of hours, the trillion-dollar corporation had turned on a dime, establishing a new subsidiary from scratch — legal work done, papers ready to file as soon as the Washington Secretary of State opened Monday morning.

They called it Microsoft RAI Inc., using the acronym for Responsible Artificial Intelligence.

“We can then capitalize the subsidiary and take all the other steps needed to operationalize this and support Sam in whatever way is needed,” Smith wrote. Microsoft was “ready to go if that’s the direction we need to head.”

Altman’s reply: “kk.”

The company calculated the cost of absorbing the OpenAI team at roughly $25 billion, Nadella later confirmed in a deposition — enough to match the compensation and unvested equity of employees who had been promised stakes in a company that now seemed on the verge of collapse.

By Sunday, Emmett Shear, the Twitch co-founder, had replaced Murati as interim CEO. That night, when the board still hadn’t reinstated Altman, Nadella announced publicly that Microsoft was prepared to hire the OpenAI CEO and key members of his team.

“In a world of bad choices,” Nadella said in his deposition, the move “was definitely not my preferred thing.” But it was preferable to the alternative, he added. “The worst outcome would have been all these people leave and they go to our competition.”

‘Strong strong no’

On Tuesday, Nov. 21, the outcome was still uncertain. Altman messaged Nadella and Scott that morning, “can we talk soon? have a positive update, ish.” Later, he said the situation looked “reasonably positive” for a five-member board. Shear was talking to the remaining directors.

Nadella asked about the composition, according to the newly public transcript of the message thread, which redacts the names of people who ultimately weren’t chosen.

“Is this Larry Summers and [redacted] and you three? Is that still the plan?”

Summers was confirmed, Altman replied. The other slots were “still up in air.”

Altman asked, “would [redacted] be ok with you?”

“No,” Nadella wrote.

Scott was more emphatic, giving one unnamed person a “strong no,” and following up for emphasis: “Strong strong no.”

The vetting continued, as Nadella and Scott offered suggestions, all of them redacted in the public version of the thread. 

Nadella added Smith to the thread. One candidate, the Microsoft president wrote, was “Solid, thoughtful, calm.” Another was “Incredibly smart, firm, practical, while also a good listener.”

At one point, Scott floated a joke: “I can quit for six months and do it.” He added a grinning emoji and commented, “Ready to be downvoted by Satya on this one, and not really serious.”

Nadella gave that a thumbs down.

The back-and-forth reflected a delicate position. Microsoft had no board seat at OpenAI. Nadella had said publicly that the company didn’t want one. But the texts showed something closer to a shadow veto — a real-time screening of the people who would oversee the nonprofit’s mission.

By evening, a framework emerged. Altman proposed Bret Taylor, Larry Summers, and Adam D’Angelo as the board, with himself restored as CEO. Taylor would handle the investigation into his firing.

Smith raised a concern. “Your future would be decided by Larry [Summers],” he wrote. “He’s smart but so mercurial.” He called it “too risky.” (Summers resigned from the OpenAI board in November 2025, following revelations about his correspondence with Jeffrey Epstein.)

Altman wrote, “id accept it given my conversations with him and where we are right now.” He added, “it’s bullshit but i want to save this … can you guys live with it?”

Nadella asked for Summers’ cell number.

At  2:38 p.m., Altman texted the group: “thank you guys for the partnership and trust. excited to get this all sorted to a long-term configuration you can really depend on.”

Nadella loved the message.

Two minutes later, Smith replied: “Thank you! A tough several days. Let’s build on this and regain momentum.”

Altman loved that one.

Nadella had the last word: “Really looking forward to getting back to building….”

Later that night, OpenAI announced Altman’s return with the newly constituted board.

“We are encouraged by the changes to the OpenAI board,” Nadella posted on X. “We believe this is a first essential step on a path to more stable, well-informed, and effective governance.”

The crisis was resolved, but the underlying tensions remained.

‘Project Watershed’

On December 27, 2024, OpenAI announced it would unwind its capped-profit structure. Internally, this initiative was called “Project Watershed,” the documents reveal.

The mechanics played out through 2025. On September 11, Microsoft and OpenAI executed a memorandum of understanding with a 45-day timeline to finalize terms.

Microsoft’s role was straightforward but powerful. Its approval rights over “Major Decisions” including changes to OpenAI’s structure. Asked in a deposition whether those rights covered a recapitalization of OpenAI’s for‑profit entity into a public benefit corporation, Microsoft corporate development executive Michael Wetter testified that they did.

The company had no board seat. “Zero voting rights,” Wetter testified. “We have no role, to be super clear.” But under the 2019 agreement, the conversion couldn’t happen without them.

The timing mattered. A SoftBank-led financing — internally called Project Sakura — was contingent on the recapitalization closing by year-end. Without the conversion, the funding could not proceed. Without Microsoft’s approval, the conversion could not proceed.

Valuation became a key focus of negotiations. Morgan Stanley, working for Microsoft, estimated OpenAI’s value at $122 billion to $177 billion, according to court filings. Goldman Sachs, advising OpenAI, put it at $353 billion. The MOU set Microsoft’s stake at 32.5 percent. By the time the deal closed after the SoftBank round, dilution brought it to 27 percent. 

OpenAI’s implied valuation was $500 billion — a record at the time (until it was surpassed in December by Musk’s SpaceX). As Altman put it in his deposition, “That was the willing buyer-willing seller market price, so I won’t argue with it.”

For Microsoft, it was a give-and-take deal: the tech giant lost its right of first refusal on new cloud workloads, even as OpenAI committed to the $250 billion in future Azure purchases.

At the same time, the agreement defused the clause that had loomed over the partnership: under prior terms, a declaration of artificial general intelligence by OpenAI’s board would have cut Microsoft off from future models. Now any such declaration needs to be made by an independent panel, and Microsoft’s IP rights run through 2032 regardless. 

The transaction closed on Oct. 28, 2025. The nonprofit remained (renamed the OpenAI Foundation) but as a minority shareholder in the company it had once controlled.

Six days later, OpenAI signed a seven-year, $38 billion infrastructure deal with Amazon Web Services. The company that had “sneaked in there” at the founding, as Nadella put it in 2015, was back — this time as a major cloud provider for Microsoft’s flagship AI partner.

In a post this weekend, OpenAI CFO Sarah Friar made the shift explicit: “Three years ago, we relied on a single compute provider,” she wrote. “Today, we are working with providers across a diversified ecosystem. That shift gives us resilience and, critically, compute certainty.”

Revenue is up from $2 billion in 2023 to more than $20 billion in 2025. OpenAI is no longer a research lab dependent on Microsoft’s cloud. It’s a platform company with leverage. 

In December 2015, Nadella had to ask whether Microsoft had been called to participate in the OpenAI launch. A decade later, nothing could happen without the Redmond tech giant. 

But OpenAI will no longer be theirs alone.

Someone listening to last week’s GeekWire Podcast caught something we missed: a misleading comment by Alexa during our voice ordering demo — illustrating the challenges of ordering by voice vs. screen. We followed up with Amazon, which says it has fixed the underlying bug.

On this week’s show, we play the audio of the order again. Can you catch it? 

Plus, Microsoft announces a “community first” approach to AI data centers after backlash over power and water usage — and President Trump scooped us on the story. We discuss the larger issues and play a highlight from our interview with Microsoft President Brad Smith.

Also: the technology capturing images of every fan at Lumen Field, UK police blame Copilot for a hallucinated soccer match, and Redfin CEO Glenn Kelman departs six months after the company’s acquisition by Rocket.

Subscribe to GeekWire in Apple Podcasts, Spotify, or wherever you listen.

Audio editing by Curt Milton.

On Tuesday, Microsoft announced a new initiative called "Community-First AI Infrastructure" that commits the company to paying full electricity costs for its data centers and refusing to seek local property tax reductions.

As demand for generative AI services has increased over the past year, Big Tech companies have been racing to spin up massive new data centers for serving chatbots and image generators that can have profound economic effects on the surrounding areas where they are located. Among other concerns, communities across the country have grown concerned that data centers are driving up residential electricity rates through heavy power consumption and by straining water supplies due to server cooling needs.

The International Energy Agency (IEA) projects that global data center electricity demand will more than double by 2030, reaching around 945 TWh, with the United States responsible for nearly half of total electricity demand growth over that period. This growth is happening while much of the country's electricity transmission infrastructure is more than 40 years old and under strain.

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President Trump was right about Microsoft — but he only leaked part of the story.

Microsoft is changing its approach to building massive data centers for artificial intelligence, unveiling what it calls a “community first” initiative in response to growing opposition from people across the country facing higher electricity bills and dwindling water supplies.

The new plan, announced Tuesday morning in Washington, D.C, includes pledges to pay the company’s full power costs, reject local property tax breaks, replenish more water than it uses, train local workers, and invest in AI education and community programs.

“This sector worked one way in the past, and needs to work in some different ways going forward,” said Brad Smith, Microsoft president and vice chair, in an interview with GeekWire. He later described the shift as “both the right thing to do and the smart thing to do.”

Trump made headlines Monday night with a Truth Social post in advance of the news, saying his administration has been working with tech companies “to secure their commitment to the American People.” He called Microsoft “first up” and said it would “make major changes … to ensure that Americans don’t ‘pick up the tab’ for their POWER consumption.”

Backlash against AI expansion

Microsoft’s rollout comes at a critical juncture for tech. 

Amazon, Google, OpenAI, Microsoft and others are betting hundreds of billions of dollars on AI, but those ambitions hinge on their ability to build out the infrastructure to support them — a prospect that depends increasingly on the cooperation of local communities that have grown skeptical of the costs and tradeoffs.

Smith said Microsoft has been developing its initiative since September. He described it as a response to shifting public sentiment — which he witnessed firsthand during visits to his home state of Wisconsin for Microsoft’s data center expansion. Back in 2024, local residents wanted to talk about jobs. By last October, the big topics were electricity prices and water use.

“We saw this catch fire, to a degree, for many other companies in many other places around the country as each month unfolded,” he said. 

In data‑center hubs such as Virginia, Illinois and Ohio, residential power prices jumped 12–16% over the past year — noticeably faster than the U.S. average, according to U.S. government data — as grid operators scrambled to add capacity for large new facilities.

The issue has drawn scrutiny on Capitol Hill. Last month, three Democratic senators launched an investigation into whether tech giants are raising residential power bills, sending letters to Amazon, Microsoft, Google and Meta. An Amazon-funded study found that the company more than covers the utility costs associated with its electricity use in some regions.

Microsoft’s change of course

Microsoft’s new approach, as outlined in a post by Smith, is a clear departure from its own past practices. The company has accepted tax abatements for data centers in states including Ohio and Iowa, and its identity was kept under wraps in a Michigan township until recently.

In the interview, Smith promised new levels of transparency. 

He acknowledged that the traditional approach in the industry was for companies to buy land under nondisclosure agreements to avoid driving up prices — giving them a competitive edge but leaving communities in the dark about who was moving in and how they would operate.

“That is clearly not the path that’s going to take us forward,” he said. The companies that succeed with data centers in the long run, he added, “will be the companies that have a strong and healthy relationship with local communities.”

Asked if Microsoft hopes to inspire or compel others to follow suit, Smith stopped short of positioning Microsoft as the sole leader, crediting Amazon for “really good and well-executed work in this space” while adding that “the industry is going to need to set a higher bar for itself.”

Microsoft’s plan starts by addressing the electricity issue, pledging to work with utilities and regulators to ensure its electricity costs aren’t passed on to residential customers. Smith cited a new “Very Large Customers” rate structure in Wisconsin as a model, where data centers pay the full cost of the power they use, including grid upgrades required to support them.

The company’s other commitments include:

• A 40% improvement in water efficiency by 2030, plus a pledge to replenish more water than it uses in each district where it operates. (Microsoft cited a recent $25 million investment in water and sewer upgrades in Leesburg, Va., as an example.)
• A new partnership with North America’s Building Trades Unions for apprenticeship programs, and expansion of its Datacenter Academy for operations training.
• Full payment of local property taxes, with no requests for municipal tax breaks.
• AI training through schools, libraries, and chambers of commerce, plus new Community Advisory Boards at major data center sites.

Record spending on AI infrastructure

Microsoft did not say how much it plans to spend on these new initiatives, separate from its broader capital expenditures, which approached $35 billion in its first fiscal quarter. 

Asked if the company would truly be able to follow through on all of these commitments, Smith said, “we have to follow through.” Internally, he said, Microsoft is “bringing some groups together” and “adding resources” to execute the plan, describing it as essential to the company’s long-term business strategy.

As for how Microsoft’s position squares with OpenAI’s push for federal incentives to support large-scale AI infrastructure projects, Smith drew a distinction. He said he supports federal help with permitting and land access, but not electricity subsidies.

“When it comes to things like electricity prices, when it comes to the water system, when it comes to training for local jobs, these are local issues,” he said.

Smith’s post references the Trump administration’s AI Action Plan and pledges to work with the Department of Labor on workforce programs. Microsoft says it will announce specific community partnerships during the first week of July, timed to America’s 250th anniversary.

Microsoft’s annual shareholder meeting Friday played out as if on a split screen: executives describing a future where AI cures diseases and secures networks, and shareholder proposals warning of algorithmic bias, political censorship, and complicity in geopolitical conflict.

One shareholder, William Flaig, founder and CEO of Ridgeline Research, quoted two authorities on the topic — George Orwell’s 1984 and Microsoft’s Copilot AI chatbot — in requesting a report on the risks of AI censorship of religious and political speech.

Flaig invoked Orwell’s dystopian vision of surveillance and thought control, citing the Ministry of Truth that “rewrites history and floods society with propaganda.” He then turned to Copilot, which responded to his query about an AI-driven future by noting that “the risk lies not in AI itself, but in how it’s deployed.”

In a Q&A session during the virtual meeting, Microsoft CEO Satya Nadella said the company is “putting the person and the human at the center” of its AI development, with technology that users “can delegate to, they can steer, they can control.”

Nadella said Microsoft has moved beyond abstract principles to “everyday engineering practice,” with safeguards for fairness, transparency, security, and privacy.

Brad Smith, Microsoft’s vice chair and president, said broader societal decisions, like what age kids should use AI in schools, won’t be made by tech companies. He cited ongoing debates about smartphones in schools nearly 20 years after the iPhone.

“I think quite rightly, people have learned from that experience,” Smith said, drawing a parallel to the rise of AI. “Let’s have these conversations now.”

Microsoft’s board recommended that shareholders vote against all six outside proposals, which covered issues including AI censorship, data privacy, human rights, and climate. Final vote tallies have yet to be released as of publication time, but Microsoft said shareholders turned down all six, based on early voting. 

While the shareholder proposals focused on AI risks, much of the executive commentary focused on the long-term business opportunity. 

Nadella described building a “planet-scale cloud and AI factory” and said Microsoft is taking a “full stack approach,” from infrastructure to AI agents to applications, to capitalize on what he called “a generational moment in technology.”

Microsoft CFO Amy Hood highlighted record results for fiscal year 2025 — more than $281 billion in revenue and $128 billion in operating income — and pointed to roughly $400 billion in committed contracts as validation of the company’s AI investments.

Hood also addressed pre-submitted shareholder questions about the company’s AI spending, pushing back on concerns about a potential bubble. 

“This is demand-driven spending,” she said, noting that margins are stronger at this stage of the AI transition than at a comparable point in Microsoft’s cloud buildout. “Every time we think we’re getting close to meeting demand, demand increases again.”