Microsoft and OpenAI have reached an agreement to allow the creator of ChatGPT to restructure itself as a public benefit corporation, valuing OpenAI at $500 billion and giving the company more freedom over its business operations.
The deal eliminates a major restriction in place since 2019, when OpenAI signed a contract with Microsoft that gave the tech giant rights to much of OpenAI’s work in exchange for the expensive cloud computing services needed to carry it out.
As ChatGPT’s popularity has exploded, these limitations have become a notable source of tension between the two companies.
FREE TOOL
XP simulator
Find out in 1 minute how much your money can yield
OpenAI CEO Sam Altman will not receive an equity stake in the restructured company, a company spokesperson said, reversing discussions from last year that indicated otherwise. The company also does not plan to focus on a public offering of shares, according to the spokesperson.
Microsoft will maintain 27% stake
Microsoft will continue to hold a stake valued at about $135 billion, or 27%, in OpenAI Group PBC, which will be controlled by the nonprofit OpenAI Foundation, the companies said. Microsoft invested $13.8 billion in OpenAI, and Tuesday’s deal implies a nearly 10x return on that investment.
Microsoft shares rose 2.5%, taking its market value above $4 trillion again.
The deal keeps the two companies interconnected until at least 2032, with a significant cloud computing contract and Microsoft retaining some rights to OpenAI’s AI products and models until then, even if OpenAI reaches artificial general intelligence (AGI), the point at which AI systems can match a well-educated human adult.
With over 700 million weekly users as of September, ChatGPT has become the face of AI for many consumers following the creation of OpenAI as a non-profit AI security group. As the company grew, the Microsoft deal restricted its ability to raise external resources and secure computing contracts, as the large number of users and research into new models caused its computing needs to skyrocket.
“OpenAI has completed its recapitalization, simplifying its corporate structure,” said Bret Taylor, chairman of the board of the OpenAI Foundation. “The nonprofit remains in control of the for-profit company and now has a direct path to key resources prior to AGI’s arrival.”
Continues after advertising
The previous 2019 agreement had clauses conditional on AGI’s arrival, and the new agreement requires an independent panel to verify OpenAI’s claims about this milestone.
“OpenAI still faces ongoing challenges around transparency, data use, and security oversight. But overall, this framework should provide a clearer path to innovation and accountability,” said Adam Sarhan, CEO of 50 Park Investments.
Gil Luria, head of technology research at DA Davidson, said the deal “resolves the long-standing issue of OpenAI being organized as a non-profit entity and establishes technology ownership rights vis-à-vis Microsoft. The new structure should provide more clarity on OpenAI’s investment path, making it easier to raise capital.”
Continues after advertising
Microsoft also reached a deal for OpenAI to buy $250 billion worth of cloud computing services from its Azure division. In return, Microsoft will no longer have the right of first refusal to provide these services.
Additionally, Microsoft will not have rights to hardware produced by OpenAI. In March, OpenAI acquired former Apple design chief Jony Ive’s startup io Products in a $6.5 billion deal.
