OpenAI has plans to add Alphabet’s Google cloud service to meet its growing needs for computing capacity. This is a surprising development considering the two companies are prominent competitors in the world of artificial intelligence.

This deal has been under discussion for months, and was finalized in May. It shows how the massive computing demands for AI has reshaped competitive dynamics within the industry, and how OpenAI is trying to diversify its compute sources beyond its main supporter, Microsoft.

Scotiabank analysts called the development “somewhat surprising” in a note on Tuesday, highlighting the growth opportunities for Google’s Cloud unit, while expressing caution regarding competition from ChatGPT.

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“The deal … underscores the fact that the two are willing to overlook heavy competition between them to meet the massive computing demands. Ultimately, we view this as a big win for Google’s cloud unit, but … there are continued worries that ChatGPT is becoming an incrementally larger threat to Google’s search dominance,” the analysts wrote. It also comes as a win for Google’s cloud unit, which will supply additional computing capacity to OpenAI’s existing infrastructure for training and running its AI models.

Google’s parent company, Alphabet, saw a 2.1% rise in stocks following the news, while Microsoft shares went down by 0.6%.

According to a Reuters report, adding OpenAI as a customer shows how Google has used its in-house tensor processing units (TPUs) to grow its cloud business. These specialized chips—somewhat similar to the GPUs produced by Nvidia to accelerate AI tasks—have helped Google attract customers, including big tech companies like Apple and Anthropic, as well as startups like Anthropic and Safe Superintelligence, two OpenAI competitors launched by former OpenAI leaders.

Google Cloud, which generated $43 billion in sales, comprising 12 percent of Alphabet’s 2024 revenue, has positioned itself as a neutral provider of computing resources. The strategy aims to challenge Amazon and Microsoft as the preferred cloud provider for AI startups with heavy AI compute needs, although selling computing power to OpenAI potentially strengthens a rival while reducing Google’s own chip supply.

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This deal is the latest attempt by OpenAI to reduce dependence on Microsoft, whose Azure cloud service had served as the ChatGPT maker’s exclusive data center infrastructure provider until January. According to Reuters, the two companies had discussed the deal for months; however, they were unable to go ahead because of OpenAI’s lock-in with Microsoft. Microsoft and OpenAI are also in negotiations to revise the terms of their multibillion-dollar investment, including the future equity stake Microsoft will hold in OpenAI.

Google’s parent company, Alphabet, is currently facing market pressure to demonstrate financial returns on its AI-related capital expenditures, which are expected to hit $75 billion this year, while maintaining its bottom line against the threat of competing AI offerings, as well as antitrust enforcement. Google’s Deepmind AI unit is also in direct competition with OpenAI and Anthropic in a race to develop the best models and to integrate those advances into consumer applications.

While ChatGPT holds a large lead over Google’s competing chatbot in terms of monthly users and analysts have predicted it could reduce Google’s dominant search market share, Google CEO Sundar Pichai has brushed aside concerns that OpenAI will usurp Google’s business dominance.