# Satya Nadella: The $1 Billion OpenAI Bet, Microsoft’s Future & The AI Revolution

*OMR Podcast* · https://www.youtube.com/watch?v=NANwT123E3U

## Summary

In this OMR Podcast interview recorded during Satya Nadella's AI tour stop in Munich, the Microsoft CEO discusses European and German tech sovereignty concerns, the story behind Microsoft's 2019 $1 billion investment in OpenAI, and whether the AI boom is a bubble. He addresses questions about the future of work, Germany's industrial future, Microsoft's Office business in an agent-driven world, and his personal hopes for quantum computing combined with AI. Nadella argues that AI's real test is real-world diffusion and GDP growth, and that societies retain control over how technology affects labor.

## Key points

- Nadella says Microsoft has invested significant capital in Europe and Germany and offers sovereign options like customer-managed keys, encryption, confidential computing, private cloud, and local partners.
- Microsoft invested $1 billion in OpenAI in 2019, a move many at the time thought was just burning money; the pivot to natural language and scaling laws convinced Microsoft to go all in.
- Nadella says the AI bubble question is answered by real-world diffusion, citing the Munich startup Perloa and the Munich fire department using AI for emergency transfers.
- He argues AI will broaden the economy on the supply side (e.g., Siemens supplying data center equipment, massive energy requirements) and create surplus and GDP growth on the demand side.
- On jobs, he says there will be displacement, but the best protection is reskilling in-job, comparing AI in software development to how Excel lowered the floor for analysts.
- He believes every AI agent will need its own Office instance, calling agents the best news for the Office business.
- His dream innovation is quantum plus AI, demonstrated by the GigaTime model simulating spatial proteomics tests for cancer immunotherapy.
- He works out every morning for about half an hour, mostly incline walks because his knees are no longer in shape.

## Notes

### Germany, Sovereignty, and Microsoft's Local Investment
- Nadella welcomes competition in Europe and says Germany deserves great innovation from the region and the world; he praises the German Mittelstand's excellence.
- He stresses that Microsoft is not just bringing software: it has significant capital at risk in Europe and Germany, plus sovereign options such as managing your own keys, encryption, confidential computing, private cloud, and local partners.
- His advice: manage risk with a portfolio approach; Germany can have sovereignty and export products worldwide, with Microsoft as a partner.

### The OpenAI Bet
- Microsoft invested $1 billion in OpenAI in 2019; everyone thought Microsoft was just burning the money.
- Bill Gates was obsessed with natural language, and when OpenAI pivoted from RL to natural language and scaling laws, Microsoft went all in.
- Nadella has known Sam Altman since his first startup, not just from Sun Valley; Dario (while at OpenAI) wrote the original scaling laws paper.

### Is AI a Bubble?
- The bubble question is answered by diffusion: he cites Perloa, a Munich startup winning share in customer experience, and the Munich fire department using AI for emergency transfers.
- On SAP, Deutsche Telekom, and Siemens together being worth less than OpenAI, he points to a broadening economy: Siemens will be a major supplier of data center equipment, energy demand will be massive, and AI should create local surplus and GDP growth.
- He declines to comment on valuations, quoting Warren Buffett's voting machine/weighing machine distinction.

### Work, Jobs, and Skills
- GitHub Copilot's next-edit suggestions reinforced his belief in transformer scaling.
- AI lowers the floor (anyone can be a software developer, like Excel made anyone an analyst) and raises the ceiling (new sophistication needed so code bases aren't black boxes).
- Displacement is real, but the best protection is reskilling in-job; he compares it to the invention of knowledge work after typing spread.
- Societies have control through political economies and elections; "we're going to shape what happens to us."

### Microsoft's Business and the Future
- He hopes Germany remains a top-three market and highlights work with Siemens on digital twins and intelligence layers.
- Office has constantly transformed (client, server, cloud collaboration), and in the agent world every agent will need its own Office instance to collaborate with humans.
- Toughest strategic call: exiting the phone market and betting on the cloud as the control plane across devices.
- Dream innovation: quantum plus AI, e.g., the GigaTime model simulating spatial proteomics tests for cancer immunotherapy, with quantum computers providing training data.
- He exercises every morning for half an hour, mostly incline walks due to bad knees.

## Transcript

[00:00] Satya, what brings you here to Germany? You know, it's our AI tour today in Munich and I'm excited to be here. Is it more difficult these days to come here and be in Germany and answer questions? Not really. I love it. I mean, it feels like the atmosphere has changed a little bit. There's more skepticism. There's some governments in Europe even thinking about only allowing European tools. There's even a supermarket giant that's developing their own cloud. Well, I mean, look, you know, first of all, I think there is real reason for why there is competition always. So, there is local competition, there is multinational competition and we welcome that and I think what Germany and what Europe deserves is great innovation both

[00:43] coming out of this region and from the rest of the world because in fact, when I look at Europe and look at Germany, in fact, I I always describe it, you know, whenever I'm in a jeweler in the United States or when I'm at the dentist, I see the German Mittelstand and its excellence. And so, the world I think will remain a connected world where the innovation from any region reaching the other regions is going to be the true sign of progress. But you but you sympathize, you can understand that some German or European companies are a little worried these days? I mean, I first of all, I think that any country should sort of think about how should they think about their own innovation agenda, their own

[01:24] competitiveness, their own sovereignty. That's the topic of the day today. And I talked about this even today in my talk, which is how one can take all the options. So, for example, if you look at it, right? We are definitely an American company, we're a multinational company, but we have significant capital that we have invested in Europe, in Germany, putting our capital at risk so the German companies can use it and then create more value, right? So, it's not like we're coming here with just software. We have both innovation and investment here and locally. And we have all the sovereign options, right? You have the ability to manage your own keys, you can encrypt your data, you can have confidential computing, you can

[02:06] even have private cloud options. And we have even local partners. And so, in some sense, I think as long as one takes the approach that, "Look, at the end of the day, if you want to manage risk, you manage it using a portfolio like everything else in life." Um and then to be able to think about it in clear ways and say, "At the end of the day, Germany needs to have sovereignty and also produce things out of Germany that get exported around the world, and we can be a great partner for that." All right. Um maybe briefly on your career. It's amazing. I mean, you when you started as CEO 2014, um the company was 10 times less valuable than today, and you I think increased the revenue by factor of five or six.

[02:46] Amazing numbers. How? Look, look, at the end of the day, um what matters the most is what happens next as opposed to what happened in the past. And if I sort of had to recount how is Microsoft, not just in my tenure or whatever, 12 years, but what's the real question is, what is it that after 50 years after our formation, here we are in 2026 uh and going at it. Um and the fundamental thing to me is having that sense of purpose and mission that allows us uh to be relevant going forward and a culture that allows us to build a capability, right? Even take the the thing that we're talking about in AI. It was back in what, 2019, 2018, when we decided that there was going to be essentially a new regime

[03:35] uh of AI innovation and see it long before it's conventional wisdom. Is it true that you invested in OpenAI in 2019, I think, for the first time? And Bill Gates was not a big fan of that. >> I mean, I think we've Bill has talked about it, I've talked about it uh you know, externally. And it is I mean, after all that, you know, who would have thought in 2019 that it is a smart idea to go put a billion dollars, right? Everybody thought we were just burning a billion dollars. And so, you know, it turns out some of these things when they work, they are celebrated and when they don't work, nobody knows about it. And so, therefore, look, at the end of the day, I'm more like the thing that we were obsessed about, and Bill in particular

[04:15] was obsessed about, was natural language, right? I mean, throughout our history from the beginning days of Microsoft Research was can we really have AI breakthroughs in natural language? And so, when the OpenAI team started pivoting from what at that time they were doing a lot more RL and and what have you, it interestingly enough they switched to natural language and scaling laws. And that's when we sort of picked it up and and rest is history. I mean, that's the legend that you met Sam Altman at Sun Valley at the conference. What did you see in him after the first meeting that in the end made you would make this investment? You know, I've I've known Sam for a long lot longer than that. I met him, you know, maybe in

[04:55] you know, when he was in his first startup. And so, it's not that I ran into him in Sun Valley for the first time. So, I've known Sam for a long time. And and quite frankly, some of the other founders of OpenAI and what have you. And I think I mean, fundamentally, interestingly enough, I think the paper that was originally written there was even written by I think Dario when he was at OpenAI on scaling laws. And so, you know, look, I think it's fantastic team they assembled. They had real belief in scaling. They And then we thought that we can be great partners. And so, and we went all in and it's been great for them and for us. Are you sometimes concerned we are still in an AI bubble, though?

[05:37] You know, look, I think it's at the end of the day, there's only thing one thing that matters, right? Which is it's not about talking endlessly about the technology. It's about seeing that technology in the real world having real impact, right? I come here to Munich and I sit and sort of listen to a startup out of Munich that's building one of the world's best customer experience. Perloa, right? Which is fantastic to see they're building they're winning share, right? That's great to see talking about German innovation which is not obviously born in Germany but winning world over and they are partnering with us. Or they go the other extreme and say you see the Munich fire department using AI to get better at their emergency

[06:25] transfers. Right? To me the bubble is a bubble if you don't have these examples of diffusion. I give you an example of when I thought it might be a little bit over hyped. Um the third most the three most important German companies SAP one of them Deutsche Telekom and Siemens they're all together less valuable than open AI's these days. Is that real? Well, I mean I think at the end of the day there is going to be more of a broadening of the economy. In fact, if anything the in the fullness of time right if what is AI going to do? AI is going to do two things. One is if you think about it it's a real physical investment, right? After all you brought up Siemens, right? I think Siemens is going to be one of the

[07:12] largest suppliers of a lot of the equipment that goes into data centers. So, I think Siemens is going to be a major beneficiary of what is going to be the build out of AI not just in Germany but world over, right? And so there is going to be and energy is going to be a massive requirement. So, I think there's going to be a broadening of the supply side of it. Then on the demand side, right? As it gets used it's going to create surplus. It's going to create local surplus whether it's in the health outcome or whether that in the public sector efficiency or what have you. So, ultimately there should be and will be GDP growth, right? That's the real test for any of this. >> valuations are staggering. Valuations

[07:50] are look, at the end of the day, you know, stock markets work because people are really looking at what the forward earnings potential of anything is and it's sort of like, you know, in the short run it is what is it that Warren Buffett thing, right? Which is it's a uh voting machine and in the long run it's a weighing machine and I'm not going to comment on uh stock prices and valuations. That's for investors to make sense of, but what I think of is an all up economy benefits from new general purpose technologies lifting all boats when it comes to productivity and this is what's happening. Do you think there's like some new breakthrough innovations in AI? Is there something after the transformer models on the

[08:29] frontier already? Yeah, I mean it's it's a good great question, right? When I I think about even it's not no longer just one transformer model. I mean, if you look at you know, where we've got it is all about pre-training scale, then we it was about post-training, then we came up with reasoning, uh then we said, "Oh, there's RL." Uh and so there's constant innovation um that's happening even in what is considered transformers and transformer architectures. Uh there is obviously going to be I always say that we are one sort of innovation away from the entire regime changing even uh in terms of what's a new model architecture that could even be more efficient uh in its performance. And so, I think we have to be very open-minded

[09:11] about it. I brought three 5 years out questions. The first one is, in 5 years out, will there be vast amounts of people without a job? I think it's going to be one of the biggest questions for us is how does work work artifact and workflow change? So, let's take software development, right? Because after all this is the place where it all started, right? In fact, my own belief in this particular transformer models and its scaling properties was, you know, reinforced when I saw next edited suggestions in GitHub Copilot. Um if I look at what's happening with software development, right? A- Any If In fact, if you look at even the history of software development, right? You know, at least, you know, I

[09:58] started learning with assembly and then compilers came and then we went to higher-level languages, we went to interpreted languages, and we've had, you know, many, many tool chain changes and levels of abstraction that made us more productive. This one is a another big leap forward in making it possible for both reducing the floor and raising the ceiling for anyone who's a software developer, right? What does it mean reducing the floor? Anyone can be a software developer, just like how Excel reduced the floor for anyone to be an analyst. Now, anyone can be a software developer. But, it's also raising the ceiling on Oh, what is the new sophistication you need in order to be productive with these new tools, so that

[10:41] these code bases that are getting generated are not black boxes. That's going to be what all of us will have to reskill ourselves on. So, to me, what I think is more important in the short run. I'm not saying that there is not going to be displacement. We have to be clear-eyed about it. What's the best protection against displacement? It's to one understand the new medium, the new tool, the new skills required, and transform yourself in job. And that is what's happening in software development, and you can see it where software developers are getting more productive, the IT backlog is huge. >> I I I totally buy it for for the software developers bubble or the that industry. But, I mean, there's talk about like

[11:22] whole economies. But, let me say this, right? If somebody in in the early '80s had come to us and said, "3 billion people, 4 billion people are going to get up every morning and type. And we would have said, "Why?" Right? You know, we have a typist pool and we have a slide pool. Why would 4 billion people type? We invented this entire thing called knowledge work. Uh and so, I think at some level, I'm not like being Pollyannic about this, but I'm saying let's at least have a bit of optimism in our ability as humans and human societies uh and as political economies, right? One thing that is discounted is like we have control. It's called political economies and elections, and people are not going to

[12:07] tolerate anything that is not going to be beneficial at society scale. And so, I'm a big believer that the what is the real governor? It's just not going to happen to us. We're going to shape what happens to us. >> No, it's it's going to be difficult. I mean, if this if the disruption happens fast, I mean, we're up for huge challenges. I mean, if this unemployment really comes, it's going to be challenging. For sure, if unemployment suddenly comes, it's going to be challenging. And so, that's where I would say let us all focus on making sure that we are doing all the things uh to help us skill ourselves such that we have more economic opportunity with what is going to be uh the new productivity curve.

[12:45] >> So, but you do not afraid of like huge waves of unemployment. I I I am afraid of anything that is going to not help human societies uh really make progress, right? So, anytime anyone gives me a dystopian worldview that we are all going to be unemployed, of course, I'm afraid of it. Uh but I'm also saying I'm not so out of control of it. Like we all as a you know, as a society get to sort of make sure that the technology we build and how it diffuses, what happens to wages, how we litigate what expertise we will reward and not reward. There's so many things uh that we are have control over that we should not abdicate all that. Um next five years question. Um do you think Germany will still be a top three

[13:29] market for Microsoft in the next 5 years? I mean, I I definitely hope so. I mean, to me, you know, what has stood out and made Germany unbelievably successful in the world is the German ingenuity, the German engineering, and its ability to produce things that the world needs and the world wants. And so, if anything, I think that industrial base that Germany has now coupled with even the digital capability. In fact, I always feel, again, to my middle start example, why not think of, you know, now all this digital data, right? And the exhaust of digital data coming back from everywhere, being, again, translated into the intelligence layer that goes with the Siemens equipment, right? One of the things that we're working with Siemens

[14:15] are all the digital twins and the intelligence layer in the digital twins. Do you talk to German leaders regularly? Absolutely. Like, who do you talk to? I mean, I talk to Ronald at Siemens, I talk to Ola at Mercedes, I talk to Ingo, I'm going to talk to many play people today. And so, yeah, I'm definitely in contact with uh, German CEOs all the time. Do you think in the next 5 years, um, Microsoft will still rely heavily on revenue from Office and Windows? You know, when we say rely on Windows Office and and Windows, it's fascinating. What is Office, right? I mean, if I asked you, right, the question, Office, when we started, people bought Office clients. Then they bought servers. And when it

[15:02] came to the cloud, they literally kind of bought really data, uh, and the data storage and the sharing and collaboration. And so, there is no such thing as even what is Office. It has gone through both business model transformation, value transformation, right? And so, I look at even our, quote-unquote in fact in the agent world. Like the first thing people are doing for agents is provision office for it. Because agents need to collaborate, need to be able to collaborate with humans. And what's the best way to do it in a Teams channel to have access to email. Like when I want to have a co-worker, my co-worker that takes my identity needs in some sense a separate office instance. And so, I think that one way

[15:50] to think about is if it remains static in anything, of course that business goes away. But when you think about what happens next, and this happened to the cloud, right? We thought we had a fantastic server business, and we thought the cloud will destroy the margins. It of course destroyed the cloud margins, I mean server margins, but it expanded the market so massively. And I look at what's going to happen with agents, and I look at that and say, "Wow, this is the best news if you really are in the office business, because every agent will need office." You always seems like a such a >> positive sunny guy and what you touch turns into gold, but I'm sure you had to make some huge and and some very tough

[16:26] decisions in your life, in your business career. What was the toughest one? Well, I mean at the end of the day, you know, toughest calls are when you have to make redeployment calls that impact people. I mean at the end, you know, that that's I think the hardest stuff. But in our case, when it comes to business strategy, you know, let's, you know, call it what it is, right? When we realized that when it came to the phone market, we were too far behind, and we needed to pick where we focused our efforts, and we picked the cloud. We always thought that the cloud as a control plane to go across devices was more important, and that's why I mean even, you know, making sure that Office was available

[17:01] everywhere and what have you. And so, you know, those were tough decisions, but at the end of the day, I I I look at this and say, "Look, at the end of the day for us, making sure we are looking at the future, irrespective of, you know, what happens to us, we have to lean into it because we can't deny what is going to be a secular shift. Any tech innovation that you'd still like to see in your lifetime? You know, to me, my sort of dream would be the coming together of these um two things that we're working on, right? Quantum plus AI. And in fact, the juxtaposition of the two. Right? One of the things we showed even at my keynote today was this model we built called GigaTime, which basically, you know, does um

[17:50] a simulation uh of spatial proteomics, right? So, it's it's it's a test that is used in immunothera- to check whether a particular immunotherapy can work for a particular cancer tumor. And today, it's an expensive test, and and so therefore, if we have a model that really is in silico able to do that test, it's then going to be available in every secondary hospital. Now, think about training that model, right? Training that model, a quantum computer can do the best simulation. After all, we're trying to learn the language of nature. And nature is quantum. And so therefore, a quantum computer will allow us to get training data to train AI models that then in silico can be much better at simulation of the real world, and that

[18:38] will allow us to get more predictive power. Last question, how does a Microsoft CEO think about longevity and how do you work out? Well, I get up try to get up every morning irrespective of the jet lag and get to hit the gym. That's >> Every morning? Every morning. For how long? About half hour. Half hour, and that's it? >> That's it. And then you do pull-ups and push-ups? Well, I mostly nowadays I'm like since my knees are no longer in shape, I'm mostly doing incline walks. >> [laughter] >> Okay. Okay. Thank you very much, Satya. Thank you so much. That's a pleasure. Let's go. LET'S GO.

[19:15] >> LET'S GO. >> [music]