OpenAI restructures with Microsoft stake in $500bn deal
Microsoft and OpenAI have reached a deal allowing the ChatGPT maker to restructure as a public benefit corporation, valuing OpenAI at USD500 billion and giving it greater freedom in its business operations.
The agreement removes a major constraint on raising capital that has existed since 2019, when OpenAI signed a deal with Microsoft granting the tech giant rights over much of OpenAI’s work in exchange for costly cloud computing services.
As ChatGPT’s popularity surged, these limitations became a source of tension between the companies.
Microsoft will retain a stake of about USD135 billion, or 27 per cent, in OpenAI Group PBC, which will be controlled by the OpenAI Foundation, a nonprofit, the companies said. Microsoft has invested USD13.8 billion in OpenAI, with Tuesday’s deal implying a return of nearly ten times its investment. Microsoft shares rose 2.5 per cent, sending its market value above USD4 trillion.
The deal ensures the two firms remain linked until at least 2032 through a cloud computing contract, with Microsoft retaining some rights to OpenAI products and AI models even if OpenAI reaches artificial general intelligence (AGI).
With more than 700 million weekly users as of September, ChatGPT has become the face of AI for many consumers. The Microsoft agreement previously limited OpenAI’s ability to raise funds and secure computing contracts as demand and research needs surged.
“OpenAI has completed its recapitalisation, simplifying its corporate structure. The nonprofit remains in control of the for-profit and now has a direct path to major resources before AGI arrives,” said Bret Taylor, chair of the OpenAI Foundation board.
The new structure resolves the longstanding issue of OpenAI being organised as a nonprofit and clarifies the ownership rights of the technology relative to Microsoft, analysts said.
Microsoft will also sell OpenAI USD250 billion of Azure cloud computing services and will no longer have a right of first refusal to provide OpenAI with computing services. The company will not have any rights to hardware produced by OpenAI.
